HMO Mortgage London
If you are looking for a HMO mortgage in London, we can assist you with Whole of Market product selections whilst keeping in mind attributes you might look for with your mortgage product. With HMO mortgages in London, you may a yield based valuation, otherwise known as an investment valuation to maximise your borrowing. In our guide below we will explain to impact of valuations, lender criteria and underwriting considerations with HMO mortgages in London.
Planning and licencing for London HMO MORTGAGES
In London, most HMOs require a license from the local council. Licensing ensures that the property meets specific standards to provide safe and habitable living conditions. The requirements can vary, but typically include fire safety measures, electrical safety checks, and ensuring there are adequate facilities for the number of tenants. Landlords must stay compliant with these regulations to avoid penalties and ensure their properties are legally rentable. For HMO mortgages, at underwriting stage, lenders will want to be sure that the property has permission to be a HMO and is licensable.
HMO mortgages offer a unique opportunity for landlords to tap into the lucrative rental market in London. While they come with higher initial costs and regulatory requirements, the potential for increased rental income and the ability to meet the high demand for affordable housing make them an attractive option. Landlords considering HMOs should carefully weigh the benefits against the challenges, seek professional advice, and stay informed about market and regulatory trends to maximise their investment potential. By doing so, they can make informed decisions and successfully navigate the complexities of the HMO mortgage market in London.
Managing agents
For borrowers without experience, HMO mortgage lenders will be interested to know whether you are using a managing agent.
Managing agents in London charge varying fees for managing Houses in Multiple Occupation (HMO) properties. The cost can depend on several factors, including the location of the property, the level of service provided, the size of the HMO, and the specific needs of the landlord. Generally, there are two types of fees associated with managing agents: setup fees and ongoing management fees.
Setup Fees
Setup fees are typically charged when the management agent takes on a new property. These fees cover the initial work involved in getting the property ready for rental and can include tasks such as:
- Inspecting the property
- Marketing and advertising
- Tenant finding and vetting
- Setting up tenancy agreements
- Conducting an inventory
Setup fees can range from a flat fee of around £200 to £500 or a percentage of the annual rent, usually between 5% and 10%.
HMO Valuations
There are different valuation methods for House in Multiple Occupation (HMO) mortgages. It is key to understand that not all HMO lenders offer investment valuations. HMO mortgage lenders, will usually use one of three valuation methods:
- Commercial Investment Valuations
- Hybrid Valuations
- Residential Valuations
Each method has specific criteria and is suited to different types of properties and borrower experience levels. In London it is likely that Large HMO mortgage borrowers may need a Commercial Market Value 1 (MV1) valuation. If you are borrowing for a small HMO property then a brick and mortar residential valuation, or a hybrid method may be a suitable HMO valuation.
Ongoing Management Fees
Ongoing management fees are charged monthly and cover the day-to-day management of the property. This can include:
- Rent collection
- Dealing with tenant queries and issues
- Organising repairs and maintenance
- Ensuring compliance with HMO regulations
- Conducting regular inspections
For HMO properties in London, ongoing management fees typically range from 10% to 20% of the monthly rental income. However, some agents may offer packages with different levels of service, and prices can vary accordingly.
QUESTIONS ON LONDON HMO MORTGAGES
HMO mortgages typically have higher interest rates and stricter lending criteria due to the perceived increased risk and management complexity compared to standard buy-to-let mortgages.
Valuation methods include commercial investment valuations, residential valuations, and hybrid valuations, each suited to different types of properties and borrower experience levels.
While some lenders require landlords to have prior experience, others may offer HMO mortgages to first-time landlords based on personal income and other criteria.
Properties that house three or more tenants forming at least two households and sharing common facilities qualify as HMOs. Larger properties with more tenants may require additional licensing.
Yes, most HMOs in London require a license from the local council. Licensing ensures the property meets specific standards for safety and habitability.
Properties in areas under Article 4 direction need explicit planning permission to operate as HMOs. Landlords must ensure compliance with local planning regulations.