DSS HMO mortgage

A DSS HMO mortgage finances a House in Multiple Occupation (HMO) let to tenants receiving housing benefit or Universal Credit. "DSS" is still the search term landlords use, although the benefits are now paid through Universal Credit and housing benefit.

Some lenders will consider benefit-supported tenant profiles, and their appetite varies significantly with the tenancy structure, any local authority involvement, the property type and how the rental income is assessed for affordability and valuation.

Mortgage Lane arranges HMO mortgages for properties let to benefit-supported tenants, including more specialist tenant profiles, matching each case to lenders whose criteria support its tenancy structure, property type, rental income profile and licensing position.

DSS HMO or social housing mortgage?

A DSS HMO mortgage is for private lettings: you let rooms in the HMO directly to tenants whose rent is paid wholly or partly through housing benefit or Universal Credit. Lenders treat this as HMO lending with a particular tenant profile, and in our experience specialist HMO lenders widely accept it.

A social housing mortgage is a different lending route. It applies where the property is leased to, or managed under agreement by, a registered provider, housing association, local authority, charity or government contractor, or where tenants need support or care, such as supported housing, supported living or assisted living. The more vulnerable the tenants and the more support involved, the more specialist the lending becomes, with different lenders, lease checks and valuation approaches. If the property is, or will be, leased to a provider rather than let directly to tenants, see social housing mortgages.

Loan to Value on a DSS HMO mortgage

Loan to Value on a DSS HMO mortgage typically ranges from 55% to 85%. At the top of that range, a borrower can finance up to 85% of the property's value, reducing the capital required upfront. Where a specific case sits within the range depends on the lender, the tenant profile and the property.

Do I need experience for a DSS HMO mortgage?

Lenders do not always require previous experience in property investment or HMO management for a DSS HMO mortgage. That opens the market to newer investors, including those entering HMO ownership for the first time, and some lenders offering DSS HMO products will consider novice landlords as well as experienced ones.

Eligibility for a DSS HMO mortgage

Both limited companies and individual investors can apply for a DSS HMO mortgage. Some investors use a limited company because the company can offset mortgage interest against its rental income, and which structure suits depends on the investor's own tax position.

To be eligible for the more competitive DSS HMO mortgage options, a borrower should meet some or all of the following:

• Income that can be evidenced
• A tenancy agreement, or vacant possession (VP), for a purchase
• A tenancy agreement for a remortgage application
• A credit score and history that meet the lender's requirements

How DSS HMO properties are valued

The valuation method a lender applies to a DSS HMO shapes the loan available. A residential comparable valuation compares the property with similar residential properties recently sold in the area, and the property is treated primarily as a single residential unit. It suits smaller HMOs that closely resemble a standard family home.

A hybrid valuation combines elements of the residential and commercial approaches. It gives some recognition to the property's rental income and HMO adaptation, but the report stays on a vacant possession (VP) basis and is not yield-based. It suits HMO-adapted properties that retain residential characteristics.

A commercial MV1 valuation treats the HMO as a commercial investment on a yield basis: the valuer analyses rental income and operating expenses and applies a capitalisation rate to determine value. It suits larger HMOs operating mainly as income-generating investments.

More detail on each method is in our guide to HMO mortgage valuations.

Product transfers and further advances

Lenders offering DSS HMO mortgages often provide product transfers and further advances, which let a landlord adjust the borrowing without a full remortgage.

A product transfer switches the mortgage to a different product with the same lender, often without a new application. It helps where the borrower's circumstances change or a more competitive rate appears within the same lender's range.

A further advance is additional borrowing on the existing mortgage, useful for property improvements, expansion or funding a further purchase.

Why borrowers choose a DSS HMO

Rent supported by housing benefit or Universal Credit is a payment stream that specialist lenders understand and are prepared to underwrite, which gives the income some stability, and where payments are made through local authority arrangements that structure can add further predictability. An HMO can also produce a higher rental yield than a single let, because multiple tenants each pay rent for an individual room within one property.

Some lenders in this market consider first-time as well as experienced landlords, so lending can be flexible for new investors, and the property supplies housing to tenants supported by the benefits system.

DSS HMO mortgage: frequently asked questions