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HMO Mortgages

There are several different ways to approach investing in buy-to-let with an increasingly popular approach being to let houses in multiple occupation.

These are essentially a property with multiple bedrooms let individually to three or more tenants on separate tenancy agreements. The government has a specific definition for HMOs as follows:

‘A property rented out by at least three people who are not from one household - e.g. a family - but share facilities like the bathroom and kitchen. It’s sometimes called a house share.’

The government defines a household as either a single person or members of the same family who live together including couples who are married or living together, step-parents and step-children, and relatives or half-relatives including siblings, aunts, uncles and grandparents.

HMOs are increasingly popular among both tenants and landlords for a few reasons. Because tenants are renting one room and the use of shared facilities, the rent is usually cheaper than if they were to rent out a one-bedroom flat for example.

Landlords like HMOs as because there are multiple leases and therefore separate rental incomes on one property, the rents generated are typically higher than if the property were to be let on a single lease. There is also the added advantage that if one tenant moves out and a room is empty for a few months, there is still rent coming in from the other tenants, allowing the landlord to cover their mortgage payments more easily.

As a result the yields available on HMOs are typically higher than on single let flats and houses. Where a landlord is a higher rate tax payer, this can make it a much more attractive investment as profits are more likely to cover costs.

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Licensing

There are strict rules for landlords who operate HMOs with various licensing rules applying differently in different council jurisdictions.

National mandatory licensing also now applies to all HMOs. Previously these rules applied only to HMOs of three or more storeys.

The government has also recently introduced minimum space requirements. Rooms used for sleeping by one adult will have to be no smaller than 6.51 square metres, and those slept in by two adults will have to be no smaller than 10.22 square metres. Rooms slept in by children of 10 years and younger will have to be no smaller than 4.64 square metres.

Your HMO licence must specify the maximum number of persons (if any) who may occupy any room and the total number across the different rooms must be the same as the number of persons for whom the property is suitable to live in.

There are additional rules for large HMOs and the details of licensing requirements vary by local authority. As a landlord, it is your responsibility to check the rules that apply to your HMO and abide by them. The penalty for failing to do this can be up to £20,000.

Apply for an HMO licence here.

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HMO Mortgages

There are a number of lenders that will accept HMO mortgage applications though each one has a slightly different appetite for where they will lend, the property type and the landlord’s experience. Some lenders are happy to lend to landlords letting to students and those receiving housing benefit or universal credit while others are definitely not, and prefer young professionals.

There are a few lenders that really understand HMO lending and are happy to assess how much you can borrow based on the investment value of the property – this means they’ll take into account the fact that it is likely to generate far higher rent than if it was the same property on a single let. However, some lenders are less familiar with how to value HMOs and you may find they offer you much less on the mortgage.

There are around 15 lenders that will consider lending to landlords on an HMO. Mortgage rates tend to be priced more highly than on ordinary buy-to-let mortgages. The larger your deposit, the lower the mortgage rate is likely to be. Some lenders will lend up to 80 per cent loan-to-value, meaning you’ll need to put in a 20 per cent deposit or equity to secure the deal.

Landlord experience is also relevant for some lenders, who can be more comfortable lending to those who have already got some experience being a landlord. If you are a first-time landlord, there are still options, but you may find the price goes up as there are fewer lenders prepared to take you on as their customer.

HMO mortgages are widely available – there are currently around half a million HMOs in the UK according to the government – but it’s hard to pin one down without using a mortgage broker. Most specialist buy-to-let mortgage lenders deal solely through mortgage brokers and we tend to have access to the best rates and criteria.

To speak to an adviser to see whether you could qualify for an HMO mortgage, contact us now.

Find Out Current Best Rates

Property Value
£
Mortgage Amount
£
Reason for Mortgage
Mortgage Type
Lender Initial Rate Type For Then APR* ERC* Fee
Leeds BS BTL 2 Year Tracker £2499 Fee BLH1.29%TrackerOct-20205.99%5%31-Oct-2020 £2499
Leeds BS BTL 2 Year Tracker £2499 Fee Portfolio BLH1.29%TrackerOct-20205.99%5%31-Oct-2020 £2499
Leek United BS BTL 2 Year Discount £895 Fee LEE1.35%Discount2 years 5.44%5% £995
Leek United BS BTL Portfolio 2 Year Discount £1895 Fee LEE1.35%Discount2 years 5.44%5% £1995
TSB Intermediary BTL 2 Year Fixed £1995 Fee Purchase TSB1.39%FixedOct-20205.09%4.4%31-Oct-2020 £1995
Hinckley & Rugby BS TBMC BTL 2 Year Discount £2999 Fee BHI1.4%Discount2 years 5.89%5.6% £3249
Leeds BS Portfolio BTL 2 Year Fixed £2499 Fee BLH1.44%FixedOct-20205.99%5.1%31-Oct-2020 £2499
Leeds BS BTL 2 Year Fixed £2499 Fee BLH1.44%FixedOct-20205.99%5.1%31-Oct-2020 £2499
Leeds BS BTL 2 Year Tracker £999 Fee Portfolio BLH1.46%TrackerOct-20205.99%5%31-Oct-2020 £999
Leeds BS BTL 2 Year Tracker £999 Fee BLH1.46%TrackerOct-20205.99%5%31-Oct-2020 £999
Mortgage product availability is subject to status and availability. Although great care is taken to ensure that product details are as accurate as possible no liability can be accepted for errors or omissions.
*APR = Annual Percentage Rate *ERC = Early Repayment Charge
*These figures are only illustrative. An assessment of your needs will be confirmed before a recommendation can be made. A Key Facts Illustration, which is personal to your circumstances, will be provided if a recommendation for a mortgage product is made.
Instant Decisions with No Credit Scoring

In assessing your requirements, we do not use credit scoring and we can provide an accurate estimate of the amount of borrowing and the viability of your requirements, without effecting your credit score.

We avoid credit searches at the initial stages given that numerous credit searches will impact your ability to access cheap credit. It is clear that too many credit applications in a short period of time will impact your score and whilst it is important to shop around, formal applications for a mortgage can trigger rejections, as it gives the impression you may be desperate for credit. It is essential when making enquiries for any financial product, that the Company does not credit score you, until such time as you have agreed to make a formal application.

We can indicate your chances of approval prior to any application being made and where necessary, can obtain decisions in principle from lenders who do not use credit scoring.

 

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