HMO mortgages
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HMO mortgagesÂ
HMOs – which stands for Houses in Multiple Occupation – have become a key part of the rental market, bringing people from different households together under one roof. For many landlords, owning an HMO means being able to generate high rental yields, compared to a standard buy-to-let home, as income is collected from multiple tenants, rather than one household. It’s easy to see why HMOs are popular. However, they do tend to be slightly more complex to buy and manage. As HMOs are regulated and managed differently – after all, they’re not a standard house that’s being rented by a couple, family or handful of friends – they require a specialist type of mortgage. If you want to buy and let an HMO, you’ll need an HMO mortgage.
At Everest Mortgages, we specialise in helping landlords and properties investors to find the right HMO mortgage. Whether you’re branching out from single let properties, or adding another HMO to an established portfolio, our expert mortgage brokers are on hand to help.
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What is a buy-to-let HMO mortgage?
If you want to buy an HMO and rent it out to generate an income, you’ll need an HMO mortgage. This is a type of buy-to-let mortgage that’s designed with HMOs in mind. HMO mortgages work similarly to standard buy-to-let loans, but they usually have stricter affordability criteria and lenders place a lot of emphasis on projected rental income and landlord experience. There are also rules surrounding the type of property you can buy with an HMO mortgage, relating to layout, room sizes and the planned number of occupants.
The ins and outs of HMO mortgages
HMO mortgages work in a similar way to other buy-to-let mortgages, until it comes down to the eligibility assessment. Lenders need to be sure that the property is suitable to be used as a HMO, and compliant with the various rules and regulations in place. This means they don’t jump into saying yes immediately; they want to make sure you can manage the financial and administrative demands of being an HMO landlord.Â
HMO lenders typically assess:
- Expected rental income – This must usually cover between 125% and 145% of the mortgage payments, sometimes higher, depending on your finances, experience and chosen mortgage lender.
- Your landlord experience – Before approving you for an HMO mortgage, many lenders require you to have a few years of buy-to-let experience under your belt. There are some that accept first timers with a strong application and large deposit, and Everest Mortgages can point you in the right direction.
- The property layout and size – Not all properties can be used as an HMO, so lenders will look at the layout and size. This includes the number of rooms, kitchens and bathrooms, assessing how many people can comfortably live in the space.
- The property location – HMOs are usually found in areas with strong rental demand, such as cities, student areas and commuter zones. Buying in the right areas shows lenders that you’re unlikely to have a problem filing the rooms.
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Who are HMO mortgages best for?
Experienced landlords looking to boost rental income
If you’re an experienced landlord, buying an HMO can increase your rental income, compared to standard buy-to-let properties.
Investors in student or professional housing markets
City centres, university towns and commuter hubs are prime locations for HMOs, making HMO mortgages a good option if you’re investing in those areas.
Portfolio landlords scaling up and diversifying
Many landlords use HMOs to boost cash flow by building a wider, more diverse landlord portfolio, spreading their investments.
New investors entering the property market
Some lenders will accept first time landlords for an HMO mortgage, usually if the property is professionally managed and affordability is strong.
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The benefits of investing in an HMOÂ
When you consider the benefits of investing in an HMO, it’s easy to see why it’s a route many landlords take.
- Higher rental yields – With an HMO, you have a stream of income from multiple tenancy agreements, rather than one household.
- Lower risk of full rental voids – With multiple people renting rooms as individuals, your income continues even if one room is empty.
- Strong demand – HMOs are especially popular among students and young professionals, which means demand is strong in many areas.
- Diversification – As is the case with any investment, there’s no guarantee of success, but investing in an HMO helps to diversify your property strategy.Â
The challenges of HMO mortgages
Alongside the benefits, there are a handful of challenges to think about. For example, HMO mortgages often have more regulation and compliance, and stricter lending criteria. You’re also likely to face higher upfront costs, including possible refurbishment to meet strict HMO standards. This is why working with a specialist mortgage broker, like Everest Mortgages, makes such a big difference.
Simplify the HMO mortgage process
Securing an HMO mortgage alone can be stressful, slow and often unsuccessful, especially if you’re not familiar with lender criteria. At Everest Mortgages, we simplify everything. By giving you access to lenders who specialise in HMO mortgages, we’re able to secure the best rates based on your landlord experience and investment goals. We match your investment strategy to the right lender, giving your application the strongest chance of approval.
Frequently asked questions
Can I get an HMO mortgage as a first time landlord?
Yes, sometimes, but fewer lenders accept first time landlords. You might need a larger deposit and a professional management plan to prove your capabilities.
How many tenants can live in an HMO?
This depends on local authority rules, room sizes and the property layout, and it can differ hugely. Some lenders also place caps on the number of rooms, so be sure to check.
Do you need an HMO licence?
Not always, but very often. Usually, you will need to have an HMO licence for a large HMO, defined as having 5 or more tenants, from more than one household and sharing facilities. Local councils can also require licences for smaller HMOs, depending on the area.
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