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.
Ask for advice
Simmonds Mortgage Services, HMO mortgage brokers
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?
An HMO mortgage is a specialist mortgage tailored for property investors looking to purchase or refinance a House in Multiple Occupation (HMO). These often have additional HMO criteria relating to the size of the property, property value and its configuration.
HMOs often attract landlords as they offer greater potential rental income, and are typically rented by students and young professionals who are looking for smaller properties. Most mortgage lenders define a HMO as a property rented to 3 or more unrelated tenants.
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?
How does an HMO mortgage work?
HMO mortgage lenders tend to prefer applicants with experience in property management, particularly with BTL or HMOs. Some may require you to have owned a BTL property for a certain number of years. Lenders will also assess your credit history and ensure you have sufficient income.
Choosing a HMO mortgage lender and product
Only some banks offer HMO products, so it’s worth contacting a mortgage broker who specialises in HMO lending, to assist in finding the best deals for you. Compare the HMO mortgage interest rates, the loan amount, valuation fees, and terms offered by different banks.
Preparing documentation
Your mortgage broker can help you prepare the required documents which will include:
- Proof of Identity
- Proof of income – typically how much income you make annually
- Property details
- Business plan (if applicable)
- Licensing information – proof the property can obtain an HMO license from the local council
Submitting the application and property valuation
Complete the mortgage application form, either through a mortgage broker or online and submit all required documents to the bank.
The lender will arrange for a surveyor to assess the property’s value and suitability as an HMO, considering the potential rental income and rental cover.
Lender’s decision, legal process and completion
The lender reviews your application and if approved advise your mortgage broker, you will receive a formal mortgage offer which will be valid for 3-6 months. A solicitor is usually appointed to handle the legal aspects of the transaction, like the transfer of funds. The purchase is finalised and the HMO will be ready to be managed under the new mortgage terms.
There are three types of lenders who may offer an HMO product:
Regular banks and building societies offering buy-to-let loans: You can often get the best terms from these types of banks 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 banks: 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 banks won’t touch.
Who is an eligible candidate for an HMO mortgage product?
There are some banks who can consider a HMO mortgage for first time landlord or a first time buyer, however the majority of lenders require applicants to already own their own residence or a buy to let property.
They will also consider:
- Level of experience as a landlord, preferably with buy-to-let or HMO properties
- Current income
- Credit rating
- Deposit amount
- Information on the HMO, including the number of bedrooms, type of tenant, HMO licence, property value, and address.
Who is an eligible candidate for an HMO mortgage product?
There are some banks who can consider a HMO mortgage for first time landlord or a first time buyer, however the majority of lenders require applicants to already own their own residence or a buy to let property.
They will also consider:
- Level of experience as a landlord, preferably with buy-to-let or HMO properties
- Current income
- Credit rating
- Deposit amount
- Information on the HMO, including the number of bedrooms, type of tenant, HMO licence, property value, and address.
How much deposit do you need for an HMO mortgage?
Some specialist lenders require a deposit around 15-25% of the property value, however some lenders may ask for a higher deposit for larger HMOs. The maximum loan-to-value ratio is typically 75% but this can go as high as 85%. Your mortgage broker can search the market and find the most suitable option.
How much can I borrow?
This is dependent on the expected rental income yield from the property. If you aren’t using a specialist lender they 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. Some lenders can also carry out a commercial valuation on the property which may yield a higher valuation. This is typically on larger HMO properties.
What are the interest rates in the HMO mortgage market?
Interest rates for HMOs are generally higher than standard residential mortgages, and typically range from 4.5-7% depending on a variety of factors. They are calculated based on the loan-to-value you need and other factors. Ask your mortgage broker to provide you with an illustration.
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.
Frequently asked questions about HMO mortgages
Do you need a license for HMO?
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)
However every council will have specific rules for licencing and you may be required to have a licence even if the property is rented to 3 or 4 tenants. There are also rules in place regarding the size of bedrooms, for single occupants its 6.51 square meters and double occupancy its 10.22.
In Scotland, the rules are a little different and you will require a license if you lease to at least three or more 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.
Do you need planning permission to convert to an HMO?
If you plan to convert a single family unit into a HMO, the requirement for planning permission is again down to the specific council rules. If the property falls into an article 4 area this would mean planning is usually needed unless the property has been an HMO previously. You must always seek advice from the council and planning departments in relation to licences and planning.
If the property will have 7 or more unrelated tenants then planning permission is always needed and this is called Sui Generis planning.
Can a first-time HMO landlord get a mortgage?
Yes, it is possible to get an HMO mortgage as a first time buyer, however there will likely be stricter HMO lending requirements and greater costs and therefore fewer lenders willing to offer HMO products. A larger deposit around 25-35% may be needed to secure the right mortgage. Working with HMO mortgage specialists may improve your chances.
Can I buy an HMO as a first-time buyer?
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.
Are HMO mortgages more expensive?
Yes, these are generally more expensive compared to standard mortgages due to higher interest rates, a larger loan and deposit, higher fees and stricter lending criteria.
Looking for a different mortgage product? See our mortgage service for Multi-unit Freehold Blocks
Get a mortgage tailored to you with Simmonds Mortgage Services
Simmonds Mortgage Services is an independent mortgage broker, meaning we’ll search the entire specialist mortgage market and make decisions based entirely on your situation, no matter how complex it may be.
Get in touch with us on 01184 693 037 or book a call with a specialist advisor to chat about your circumstances. We’re here to listen, answer your questions, and provide advice to help you take the next exciting step.
Andrew’s blog
Getting a mortgage can be scary but you don’t have to feel alone. Simmonds Mortgage Services are experts for a reason and we love to share our knowledge. Read Andrew’s blog to learn more about mortgages.
Can you get a mortgage later in life?
