Buy to let mortgage for HMO
A Buy to Let (BTL) mortgage for a House in Multiple Occupation (HMO) is specifically designed for landlords who rent out properties to multiple tenants, often unrelated, who share common areas such as kitchens and bathrooms. This type of mortgage is essential for those looking to invest in properties that cater to shared living arrangements, which can yield higher rental income compared to single occupancy rentals. Buy to let mortgage products may allow for small HMOs that do not need to be valued on an investment basis, usually for those that also do not need to be licenced if they fall below the size or occupancy guidelines. This can be advantageous for borrowers who can potentially get a lower cost of borrowing on standard buy to let products.
Multiple Occupancy Mortgage
A Multiple Occupancy Mortgage, often referred to in the context of HMOs, is tailored to the unique needs of landlords managing properties with multiple tenants. These mortgages typically come with specific criteria and lending conditions that reflect the complexities and risks associated with multi-tenant properties.
Loan to Value Ratios (LTVs)
LTV ratios for Buy to Let mortgages for HMOs are generally lower than those for standard BTL mortgages. Most lenders offer LTVs up to 75%, although some may offer higher or lower percentages based on the property and borrower profile. The LTV ratio determines the maximum loan amount relative to the property’s value, which in the case of HMOs, often considers the added risk and management complexity.
Bricks and Mortar Valuation
This traditional method assesses the property’s value based on its physical characteristics and comparable sales in the area. It does not consider rental income or the property’s potential as an HMO in its physical valuation. This approach is straightforward but may not fully capture the income-generating potential of an HMO, only for affordability.
Licensing and Planning | HMOs
Not all HMOs require licensing or planning permission. The requirements depend on the local authority regulations and the specific characteristics of the property. Some HMOs, particularly smaller ones with fewer tenants, may not need to be licensed. Similarly, certain properties used as HMOs might not require planning permission if they fall within permitted development rights or specific local criteria.
Residential Valuation | Suitable Lenders
Properties that do not need HMO licensing or planning permission can often be valued as residential properties using the Bricks and Mortar method with comparable sales. These properties are suitable for some Buy to Let mortgage lenders who may choose to ignore the HMO usage for valuation purposes. This can be advantageous for landlords, as it simplifies the mortgage application process and may result in more favourable lending terms with lower interest rates than commercial products.
Commercial MV1 Valuation
Commercial MV1 (Market Valuation 1) valuations differ significantly from the Bricks and Mortar or Hybrid methods. MV1 is a commercial valuation method that focuses on the income-generating potential of a property rather than its physical characteristics alone. This approach is more aligned with commercial properties or larger residential complexes where income is the primary valuation driver.
For HMO landlords seeking to leverage commercial MV1 valuations, standard Buy to Let mortgage products are typically unsuitable. Instead, borrowers need to apply to commercial buy to let mortgage lenders who specialise in this type of financing. Commercial lenders are more equipped to assess and underwrite loans based on the property’s income potential and often offer more flexible terms for larger or more complex HMO investments.
Securing a Buy to Let mortgage for an HMO involves navigating specific criteria, lower LTVs, and unique valuation methods. Understanding these elements is crucial for landlords to maximise their investment potential. While standard lenders focus on Bricks and Mortar or Hybrid valuations, those seeking to leverage the full income potential of their HMO should consider commercial buy to let lenders for an MV1 valuation approach. This strategy ensures a more accurate reflection of the property’s worth and supports more significant and profitable investments in the HMO market. Additionally, for properties that do not require HMO licensing or planning, residential valuation methods and lenders who disregard HMO usage can offer simpler and potentially more favourable mortgage options.
QUESTIONS ON BUY TO LET MORTGAGE FOR HMO
A Buy to Let mortgage for a House in Multiple Occupation (HMO) is a loan designed for landlords who rent out properties to multiple tenants who share common facilities. For small HMOs we are able to achieve buy to let products which come with lower interest rates, the trade off is that the property will be valued as a residential property and not on an investment basis, which can suffice for smaller HMOs that have not been significantly adapted for multiple occupancy.
LTV ratios for HMO mortgages typically go up to 75%, though this can vary based on the lender and specific property.
Hybrid valuation combines Bricks and Mortar assessment with consideration of the property’s rental income potential, offering a more comprehensive value.
No, not all HMOs require licensing. Licensing requirements depend on the number of tenants and local authority regulations.
Yes, some Buy to Let mortgage lenders will ignore HMO usage for valuation and treat the property as a standard residential property.
A Multiple Occupancy Mortgage is tailored to the needs of landlords managing properties rented out to multiple, often unrelated tenants.
Bricks and Mortar valuation assesses the property’s value based on its physical characteristics and comparable sales, ignoring rental income potential.
Standard Buy to Let mortgages do not use commercial MV1 valuations. For MV1 valuation, borrowers should approach commercial buy to let mortgage lenders.
Not all HMOs require planning permission. This depends on local authority rules and whether the property falls within permitted development rights.
Interest rates for HMO mortgages can be higher due to the increased risk associated with multi-tenant properties.