How to get a Mortgage for Houses in Multiple Occupation (HMO)

Houses in Multiple Occupation (HMO) is an attractive lettings investment strategy because of its increased profitability potential. In general, an HMO property is rented to multiple tenants. All parties living in the house share the facilities such as the bathroom, kitchen, dining and living rooms. This type of housing model is quite popular among tenants as it’s much cheaper to rent a room than a whole flat or a house.

Like every other investment, HMOs come with perks. Therefore, as a landlord, you must evaluate all the pros and cons before choosing this business model. Reducing risk and avoiding unnecessary losses should be your primary goal when choosing the right property investment strategy.

It’s important to note that lenders offer different terms and conditions for single-let properties, therefore, you need to take a different mortgage designed explicitly for HMOs.

Why is an HMO mortgage different from a buy-to-let property?

HMO mortgage is different simply because the lenders understand that running costs for an HMO are often higher than those of a single-let property. There are also more regulatory guidelines to follow, longer rental void periods to consider and potentially higher property maintenance costs which essentially means increased risk for the lender. If you decide to be sneaky and take a regular mortgage but rent out an HMO, the lender can take legal action against you because you will be breaking the terms of conditions.

HMO mortgage application criteria

Despite their popularity, HMOs are still considered a very niche business model, therefore, the lenders prefer that the borrowing party has previous letting experience. It’s even better when landlords use a professional letting agency to manage HMOs instead of managing independently. Only a few lenders want to lend to a new landlord, usually offering excessive interest rates.

Alongside the standard mortgage assessment process, lenders may also request other information, including:

• Your experience as a landlord
• Your HMO license
• Your company details
• Location of your HMO
• Number of rooms
• AST agreements for every room
• What kind of tenants will rent your property
• Estimated or actual rental income

Picking the right HMO mortgage lenders

Getting the right mortgage lender for your HMO property is extremely important if you want to maximise your income. Each lender has varied criteria and interest rates based on the nature of your HMO property, therefore, it’s important to understand all the criteria before applying.

Expect the mortgage rates to be higher than a standard buy-to-let mortgage, but as with all mortgage types, having a larger deposit can result in reduced rates. To secure the best deal, make sure you speak with different lenders.

What size of mortgage can you get?

As mentioned before, this highly depends on the mortgage lender’s criteria. Most likely, you will need to prove that your rental income can cover at least 125% of mortgage payments to ensure you can maintain steady payments despite prolonged void periods or maintenance costs. On the contrary, some lenders may consider lending based on the potential yield rather than the actual income, but that’s quite rare. Most lenders will lay out a maximum loan-to-value for an HMO mortgage between 65-85%.

Thinking of getting a mortgage for an HMO?

It’s important to note that this is a niche lending area populated by specialist lenders. There are plenty of options available in the market, but many will only accept applications via trusted brokers. So, if you’re looking to secure an HMO mortgage, get in touch with us today to receive expert consultation on what you should look for in a mortgage lender.