If you’re a landlord or property investor with questions about Houses in Multiple Occupation (HMO), you’ve come to the right place. At James Leighton Financial Services, we can provide you with the HMO mortgage broker support you need to finance Houses in Multiple Occupation. But first things first. What is an HMO?
What is an HMO mortgage and how does it work?
An HMO mortgage is a type of Buy to Let mortgage that is used to buy property that will be rented to multiple tenants from different households. These are known as Houses in Multiple Occupation (HMO) properties. A property is an HMO if both of the following apply:
- At least three tenants live there, forming more than one household
- Toilet, bathroom or kitchen facilities are shared
A household consists of either a single person or members of the same family who live together. It can include people who are married or living together and people in same-sex relationships.
According to a 2019 briefing paper from the House of Commons Library, there were “an estimated 497,000 HMOs in England and Wales at the end of March 2018”.
How does an HMO mortgage differ from a standard Buy to Let mortgage?
In this situation, you will need a more specialist mortgage than a standard Buy to Let mortgage. HMO mortgages are more complex than a normal Buy to Let mortgage:
- Large HMO properties and some standard HMO properties require a licence before HMO mortgage lenders will approve a mortgage. You can get an unlimited fine if you rent out an HMO without the required licence. If multiple properties in your portfolio require this type of licence, each must have one - which will need to be renewed every five years (three in Scotland). Some licences include conditions, such as limiting the number of rooms or improving the quality of shared facilities, depending on the local authority. It’s also fairly common for licences to be rejected.
- HMO mortgage rates are often linked to SONIA (Sterling Overnight Index Average), instead of the Bank of England base rate. This is usually more expensive as it's purely for commercial use.
- There are more extensive criteria for HMO lending when compared to standard Buy to Let mortgage criteria. The criteria also vary widely from one lender to another, as some prefer certain types of property or tenant over others.
- An HMO mortgage works like a traditional Buy to Let mortgage, but not all lenders are happy to offer Buy to Let mortgages on an HMO basis. There are far fewer lenders offering HMO Buy to Let mortgages than standard ones. As there are fewer lenders and the criteria can be quite extensive, it’s a good idea to use a mortgage broker if you’re looking for a mortgage to buy an HMO property.
