HMO Mortgage

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What is an HMO Mortgage?

A House in Multiple Occupation (HMO) is a property that is rented to three or more unrelated tenants, that may share facilities and as a result will require a HMO mortgage.

Rather than rent a property to a single household, an HMO allows landlords to rent the property to multiple households.

How Does an HMO Mortgage Work?

HMO mortgages work by allowing you to take a mortgage deal against a property, which is then repaid through regular monthly payments. HMO mortgages are usually only offered through specialist mortgage lenders.

Buy to let mortgages for HMO properties are simply referred to as HMO mortgages.
Affordability calculations on a specialist HMO mortgage are calculated based on your rental income.

What Type of Mortgage is Needed for HMO?

If you’re renting to more than three tenants from separate households, you’ll need an HMO mortgage. This is because your property won’t qualify for a regular buy to let mortgage, as they are only designed for single-household tenants.

Some mortgage lenders only offer HMO mortgages for up to 6 people. Other lenders are happy to offer a mortgage lender for higher than 6 usually up to a 12 person HMO.

Are HMOs a Good Investment?

HMO can often offer greater rental yields. Tenants are attracted to HMO properties due to the low cost of living compared to letting a full property. They are popular in high-value rental income areas as the cost is shared by more paying residents. They are favoured by young professionals and students.

Even though rates can be a bit more expensive for an HMO mortgage, the rental income you can make usually makes them a better proposition. 

Speak to an Expert!

elliott-culley-mortgage-adviser- director-of-switch-mortgage

Contact us today for expert advice and guidance on your unique mortgage and property needs. We will work with you on a one-on-one to basis to help you find the right solution for your needs.  

With our experience you can rest assured that you are in good hands when it comes to securing the financing you need for your property.

How Much Can I Borrow on an HMO Mortgage?

How much you can borrow on an HMO mortgage is based on the rental income you are receiving, the interest rate and your current tax position.

The mortgage lender will stress test the rental income to ensure it can cover the monthly mortgage payments.

If you are a lower rate taxpayer, or are purchasing your HMO property through a limited company you will have a lower stress test calculation to pass. You may also be able to lend more on a 5 year fixed rate compared to a two year fixed or tracker product.

In most cases, as the rental income yield with HMO’s is strong, affordability is unlikely to be an issue even at higher LTVs.

How Much Does an HMO Cost to Run?

Running costs for an HMO are often higher when compared to a standard buy to let. There may be more maintenance, turnover of tenants and the health and safety guidelines for an HMO are a lot more comprehensive. You may decide to use a letting agent to assist with the running of the property.

How Much Deposit Do You Need for a HMO Mortgage?

For most lenders, you will need at least 25% deposit, however there are some lenders that can go to 20% deposit. 

How do you calculate the stress test for buy to let mortgages. Switch Mortgage Finance

Are HMO mortgages more expensive?

HMO mortgage rates tend to be higher than standard buy to let mortgage products. Lenders that are prepared to lend on an HMO will charge slightly higher fees and rates for a mortgage.

However rental income is usually much higher than a standard buy to let, and therefore your rental yield is usually far greater despite the higher rate.

HMO ltd company mortgages

Yes it is possible to obtain a HMO property in a ltd company. Many landlords decide to set up a limited company for their rental properties to reduce their tax liabilities.

There are many lenders that offer HMO products for ltd companies. In most cases they have higher fees than mortgages in your personal name, but interest rates are very competitive.

HMO mortgage for a first time landlord

It is possible to obtain a HMO mortgage as a first time landlord. Whilst many lenders prefer you to have experience, there are some who approve HMO mortgages for new landlords.

Provided the HMO property you are considering purchasing has 6 or less bedrooms, you will have options available. If your HMO property has more than 6 bedrooms there is one or two mortgage lenders that may consider this.

You cannot be a first time buyer trying to purchase a HMO as your first property, unless a joint application with someone with BTL experience.

Why Choose a Mortgage Broker?

When purchasing an HMO mortgage, you’ll want access to the best products on the market. For this reason, we’d highly recommend having an advisor on board. Our specialists can find you a suitable lender and help you secure a mortgage in no time at all.