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HMO Mortgages

HMO mortgages, or Houses in Multiple Occupation, is the term for mortgages on properties that are either purpose-built flats or have been converted from one property into multiple dwellings.

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Mortgages for houses in multiple occupation can be more complex and it’s a good idea to get HMO mortgage advice from an expert HMO mortgage broker.

What is an HMO mortgage?

If you wish to rent a property to three or more people who are not part of the same household, you will need to use an HMO mortgage. Specialist HMO mortgages often have additional lending criteria relating to the size of the property and the configuration of the property.

what is an HMO mortgage
how does an HMO mortgage work?

How does an HMO mortgage work?

An HMO property mortgage works like a regular buy-to-let mortgage but it has more criteria that you need to meet. They are usually offered on an interest-only basis and the HMO mortgage rate may be fixed or variable.

What is the application process for an HMO mortgage?

There are three types of lenders who may offer an HMO product:

  • Regular banks and building societies offering buy-to-let mortgages: You can often get the best HMO mortgage rates from these types of lenders but the lending criteria are stricter than specialist providers.
  • Specialist HMO lenders: If you are looking to buy a larger HMO property or your application is more complex, a specialist provider is a good choice as they tend to have more flexible HMO mortgage criteria.
  • Commercial mortgage lenders: This type of lender usually offers the most flexible criteria but you’ll pay a higher interest rate as a result. A commercial mortgage lender might be ideal for those with complex HMOs, first-time HMO landlords lacking experience, or those with unusual circumstances that other lenders won’t touch.

Who is an eligible candidate for an HMO mortgage product?

If you are an existing landlord and you have had a property portfolio for at least a year, you will be considered for HMO finance by most lenders. To be eligible for HMO mortgages, borrowers will provide information on:

  1. Level of experience of buy to let
  2. Level of experience in HMO
  3. Current income
  4. Credit rating
  5. Deposit amount
  6. Information on the HMO, including the number of bedrooms, type of tenant, HMO licence, property value, and address.
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How much deposit do you need for an HMO mortgage?

The maximum loan-to-value is around 75%, although some specialist lenders may go as high as 85%, leaving a deposit required of 15-25%.

How much can I borrow?

This will depend on your current level of income and the expected rental yield from the property. Lenders may not take into account that multiple occupancy will yield higher rental incomes than renting the property to one family when working out affordability criteria so you may not be able to borrow as much as you want.

What are the interest rates in the HMO mortgage market?

Interest rates are generally higher than standard residential or buy-to-let mortgages

Get the right HMO mortgage deal for you with Simmonds Mortgage Services

As there are fewer products and lenders, it’s important to get expert HMO mortgage advice from a reputable mortgage broker who understands HMO mortgage products and the HMO market. As experienced mortgage brokers, we have access to a range of lenders to help you secure the best deal possible.

In England and Wales, you will only require an HMO license if the property you are buying is classed as a large HMO. The definition of a large HMO is that the following criteria must be met:
  • it is rented to five or more tenants who form more than one household
  • some or all tenants share bathroom and/or kitchen facilities
  • at least one tenant pays rent (or their employer pays it for them)
In Scotland, the rules are a little different and you will require a license if you rent to at least 3 unrelated people who share the bathroom and kitchen facilities. HMO license fees range between £400 to over £1200 depending on your local authority. Check your local council website for more information.

No, it is not generally required to get permission from the planning department.

Yes, it is possible for a first-time landlord to get an HMO mortgage, although some lenders may be reluctant to lend to someone with little experience in the property rental market and managing HMO properties. As a result, the HMO mortgage rates offered along with other finance costs and arrangement fees are likely to be higher.

Yes, it is possible for your first purchase to be a house in multiple occupation but as an inexperienced borrower, there are fewer lenders willing to offer great value HMO mortgages. Criteria for lending are stricter and you will likely need a deposit as high as 35% to get an HMO mortgage product.

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