Buy, remortgage or release equity with a mortgage for Houses in Multiple Occupation (HMOs)
Buy, remortgage or release equity with a mortgage for Houses in Multiple Occupation (HMOs)
Investing in Houses in Multiple Occupancy (HMOs) can be one of the best ways to maximise your returns as a professional landlord. By taking out a HMO buy to let mortgage you can unlock equity from your existing property for further investment, or use the loan to purchase new properties.
Investing in Houses in Multiple Occupancy (HMOs) can be one of the best ways to maximise your returns as a professional landlord. By taking out a HMO buy to let mortgage you can unlock equity from your existing property for further investment, or use the loan to purchase new properties.
A House in Multiple Occupation (HMO) is a property occupied by three or more unrelated individuals who share bathroom or kitchen facilities. Typically this would be a house-share for students, young professionals, or couples in city locations. The attraction for landlords is that rent from HMOs generate higher rental yields than standard buy to lets, although they can be more challenging to manage. A HMO can be a great addition to an established property portfolio. Most HMOs require a licence from the local council, but as the rules vary from council to council you’ll need to check your specific obligations on the local authority’s website.
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Each lender has their own set of criteria that you must meet in order to be considered for a buy to let loan. The list of eligibility checks that lenders use to decide whether or not to lend include assessments of your experience, income and credit history. They’ll also assess the type of property you’re buying, the quality of tenant and how much rent you’ll get.
Some lenders will have a maximum number of bedrooms allowable – often 6 bedrooms – whereas others will support much larger HMOs. If the tenants are on social support, or are classed as “vulnerable tenants”, some lenders will be reluctant support, while some will accept these scenarios. If you already own the property expect to have to demonstrate the rents you receive via your bank statements.
Typically you’ll be eligible for a HMO mortgage if:
HMO mortgages require a hefty deposit, and that should be a major consideration before the mortgage hunt begins. The amount that you’ll need varies, depending on what the lender thinks you’ll be able to afford, and what type of property you’re hoping to buy.
Usually a HMO deposit will need to be at least 25% of the overall purchase price. That means lenders can lend up to 75% loan to value (LTV). Sometimes 80% LTV is possible, but the rate does go up. Of course, many property investors hope to pay the smallest possible deposit, so it’s well worth shopping around to establish the amount that different lenders are able to offer. In some cases you may be able to fund the entire purchase price by offering a second property as security to a lender.
Use our calculator to work out how much you may be able to borrow
Arranging a HMO mortgage will take a similar amount of time to arranging a standard buy to let mortgage. The process involves gaining approval, instructing valuers, and then the conveyancing process with solicitors.
A HMO mortgage will usually come with an arrangement fee and an annual interest rate. You will also need to pay for a valuation fee and solicitor fees.
Typical lender costs may include:
Application fee: often added to the loan. Typically around 1.5%, but sometimes this can be as low as 1% or as high as 2%.
Interest rate: normally shown as an annual interest rate. Depending on the lender’s assessment of your risk rating, this often ranges from 2.5% to 6% per annum. You can normally opt for fixed rates for 2 years of 5 years, or variable rates (these are often a little cheaper, but could rise during the loan term).
Other fees: such as early repayment charges, and third party fees such as valuation fees. Always read the loan contract in detail.
Which lender has the best HMO mortgage rates? It’s a simple question but the answer depends on your specific situation. HMO mortgage interest rates vary from lender to lender based on their view of your risk profile. Lenders have their own risk appetites and scorecards, but a helpful way to get an idea of what interest rate you could get is to think in terms of “risk bands”:
Talk to one of our Property Finance Specialists. We’re on hand to take you through the options available.
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