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HMO Mortgage
If you are looking for a HMO mortgage, our team of award winning brokers would be pleased to assist. At Mortgage Lane, many of our advisors are HMO investors themselves, so we really understand the value in the products we recommend. Whether you are first time buyer with a low credit score or an experienced portfolio landlord we are well versed with your situation.
PROCESS BREAKDOWN
1
Information gathering and advice
The first process in your mortgage application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your expert HMO mortgage broker will make a product recommendation.
2
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
3
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender). This will usually completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
4
Offer and completion
Once you have had your HMO mortgage offer, you will require adequate legal advice and then once you’re happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too!
Types of HMO Mortgages
We assist both investors and portfolio landlords with HMO mortgages. Below we explain all the types of variations you might come across as well as information on different ownership types and how this can impact your mortgage options.
Student HMO mortgages
The majority of student rental properties fall under the category of Houses in Multiple Occupation (HMOs), where students share common facilities like kitchens and bathrooms. Opting for this type of letting can considerably enhance a property’s rental yield by converting individual rooms into separate rental units. Additionally, properties with this setup may attract a higher valuation, especially if applying for a mortgage product that requires a hybrid or commercial HMO investment valuation.
An important consideration is the HMO licensing requirement. Properties let to five or more tenants, or those spanning at least three stories, typically require an HMO licence. This licence is essential when securing a mortgage for an HMO property. It’s worth noting that licensing requirements can vary based on local housing regulations, and some HMO properties in selective licensing areas may not require a licence.
At Mortgage Lane we can connect you with the most suitable student HMO mortgage lender. Whether you need a licence or not!
Large HMO mortgages
Large HMOs are those exceeding 7 bedrooms and often as large as 50 rooms.
Clients looking for mortgages on large HMO properties usually will require a lender using a local commercial valuer to commission an investment valuation report. This will provide the most accurate and appropriate valuation for this asset type. For experienced applicants there are many options for lending on these property types for a range of loan to values between 60-80%.
Any HMO with 7 or more rooms will require planning or a certificate of lawful use in order to be a compliant dwelling. Lenders will want to see this, so for purchases it is best to get this in advance. As well as planning you will require HMO licensing requirement. This licence is essential when securing a mortgage for an HMO property.
Social housing HMO mortgages
At Mortgage Lane, we offer bespoke mortgage solutions specifically designed for social housing Houses in Multiple Occupation (HMOs). Our expertise extends to accommodating properties leased to a wide range of social housing entities, some of which manage complex care scenarios. We frequently assist clients in securing mortgages for properties dedicated to providing both short and long-term care within the social housing sector.
Given the diverse nature of social housing, it is crucial for clients to provide Mortgage Lane with the lease details of the property they intend to purchase or remortgage. This information allows us to effectively identify a lender who is receptive to the specifics of the lease, including the social housing provider involved, the lease term, and the type of tenants expected.
The tenant types we commonly see in social housing HMOs include:
Care leavers
Individuals requiring assisted care
Ex-offenders
Understanding these tenant types helps us align mortgage products with the unique requirements of your social housing HMO property, ensuring a tailored and effective mortgage solution.
Purpose Built Student Accommodation (PBSA) mortgages
Purpose Built Student Accommodation (PBSA) is often the name given for student halls. This can be student apartment blocks with shared facilities such as a gym, games room and WIFI can also be classed as a PBSA.
Where the PBSA is in a high rise block, that can also make your avenue of lending more specialist. Whilst many of these blocks are privately owned, these units are rarely up for sale and therefore lending hasn’t been well designed for these units or blocks. At Mortgage Lane our specialist team understand this asset type and can recommend those mortgage lenders that are out there lending on PBSA.
Small HMO mortgages
Not all Houses in Multiple Occupation (HMOs) necessitate planning permission or licensing, and for such properties, there are a select few lenders who might consider them under their standard buy to let mortgage products. When it comes to limited company lending, the options are relatively fewer. However, Mortgage Lane is adept at securing HMO mortgages for small HMOs, acknowledging the absence of licensing and planning requirements.
Alternatively we are able to achieve a HMO mortgage on a small HMO. Our success lies in our ability to work with lenders who understand the unique aspects of small HMOs and are willing to proceed without these typical prerequisites. While not widespread across all lenders, our experience and established relationships have enabled us to successfully complete multiple transactions involving small HMOs lacking these specific requirements. Mortgage Lane’s expertise ensures that our clients have access to the best possible mortgage options for their unique property investments.
HMO valuation methodology and beyond
At Mortgage Lane, our brokers well understand what these products are set to achieve. For HMO properties, you might require a hybrid, or commercial valuation – as these are product dependant, we will assist in making sure you get the correct submission to make way for a smooth application and a subsequent completion. The flexibility of product criteria maintains throughout other aspects such as, lack of experience, tenant type (DWP, or Housing associations) and specialist property types or covenants. We are experienced in which lender to approach for your HMO, with nationwide knowledge of which lenders to approach depending on your properties location. Sometimes you need a lender that will instruct a local valuer, rather than a large valuation outlet!Specialist HMO mortgage brokers
We work with lenders that understand Houses of Multiple Occupation (HMO) however big or small. Sometimes, your HMO might not be licensable, or might not require planning if outside Article 4. Other HMO’s might be larger and you may need to use a lender allowing for specific valuation types or tenant types. We also deal with applicants that require bespoke personal criteria options for ethical financing, or applicants based overseas. Specialist scenarios we assist with:
- Hybrid valuations
- Commercial valuation methods
- DWP tenants
- Housing association leases
- HMOs with up to 50 rooms
- Expats
- Foreign nationals
- Sharia Compliant
TRY OUR HMO MORTGAGE CALCULATOR
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT HMO MORTGAGES
How is affordability calculated on HMO mortgages?
HMO mortgage lenders will use the rental income of the security property, which is the property you are buying or remortgaging.
If you’re purchasing a property as an individual, the financial stress test applied by lenders might be more stringent compared to basic rate taxpayers. For instance, a basic rate taxpayer could be assessed at 125%, whereas a higher rate taxpayer might be evaluated at 145%. For five-year fixed mortgages, lenders often use the pay rate of the product for stress testing, say 5.89%. As an example, for a basic rate taxpayer earning £600 per month in rent, the calculation would be: £600 x 12 / 1.25 / 0.0589, resulting in a maximum loan of £97,792.
Interestingly, limited companies usually undergo stress testing at a rental coverage of 125%, except some HMO products may use a higher rate, others follow the above. This implies that if you’re a higher rate taxpayer facing challenges with stress testing and achieving desired loan sizes, opting for a limited company mortgage might allow you to borrow more.
Can I get a HMO mortgage near a power station or powerlines?
Absolutely, securing an HMO mortgage for a block of flats that possesses an HMO licence is feasible. It’s important to recognise, however, that such a property is typically classified under a Multi-Unit Freehold Block (MUFB) mortgage. This is especially true if the block operates on a single utility connection.
Understanding HMO Mortgage for MUFB with HMO Licence:
Specialised HMO Mortgage Lending: For blocks of flats with an HMO licence, HMO mortgage solutions are sought from specialist lenders. These lenders are experienced in dealing with the unique aspects of HMO mortgages for such properties.
Flexibility in HMO Mortgage Offerings: HMO mortgages cater to a variety of property types within the HMO spectrum. This includes complete HMO setups with individual rooms, combinations of rooms and flats, and even studio apartments under HMO licensing, irrespective of their size.
Mortgage Lane’s Expertise in HMO Mortgage: As a broker specialising in HMO mortgages, Mortgage Lane has access to a network of lenders proficient in providing HMO mortgages for diverse property configurations, including blocks of flats under HMO licensing.
Advantages of Choosing Mortgage Lane for Your HMO Mortgage Needs:
Customised HMO Mortgage Solutions: We excel in connecting borrowers with tailored HMO mortgage options for their specific investment, particularly for blocks of flats with HMO licences.
Wide Range of HMO Mortgage Options: Our expertise and lender network enable us to accommodate various HMO property types, ensuring a suitable HMO mortgage for every unique scenario.
Guidance and Support in HMO Mortgage Process: Our team is dedicated to navigating the intricacies of HMO mortgage applications, ensuring a streamlined and effective experience for our clients.
Conclusion:
Mortgage Lane is adept at facilitating HMO mortgages for blocks of flats with HMO licences, offering expert guidance and access to specialised lending options in this niche area.
What is the minimum property value size on a HMO mortgage?
In the realm of HMO mortgages, it’s interesting to note that there is technically no set minimum property value universally applied. However, when delving into the specifics of HMO mortgage offerings, you’ll find that market-leading lenders typically set a minimum HMO property value at or above £75,000.
Understanding Property Value Variations in HMO Mortgage Approvals:
Lender-Specific Criteria for HMO Mortgages: Each lender in the HMO mortgage sector has their own benchmarks and requirements, contributing to variations in the minimum property value for an HMO mortgage.
Market Trends Influencing HMO Mortgage Options: Prominent lenders in the HMO mortgage market often establish a minimum value threshold to manage risk effectively. Properties valued at £75,000 or higher are commonly seen as a starting point for these HMO mortgage providers.
Navigating HMO Mortgage Requirements: As a prospective borrower, understanding these varying thresholds is crucial in identifying the most suitable HMO mortgage for your investment.
Tips for Potential HMO Mortgage Applicants:
Market Research: Explore different HMO mortgage lenders to get a clear picture of their minimum property value requirements. This knowledge is key in finding an HMO mortgage that aligns with your property’s value.
Consultation with Experts: Engage with mortgage advisors specializing in HMO mortgages. Their expertise can provide valuable insights into the nuances of the HMO mortgage market, helping you make informed decisions.
Conclusion:
While there’s no universally fixed minimum property value for an HMO mortgage, market-leading lenders typically look for properties valued at £75,000 or more. Understanding these lender-specific nuances is essential in securing an HMO mortgage that aligns with both your financial and investment goals.
Can I get a HMO mortgage near a commercial property?
Sometimes HMO mortgage lenders, or valuers may not provide a mortgage or valuation where a property is within the close proximity of a commercial property that may reduce kerb appeal or “resaleability demand”
Sometimes, it will depend on how invasive the commercial property is, this can be for a variety of types such as:
- Takeaways
- Restaurants
- Hotels
- Pubs
- Petrol Stations
- Light industrial
SPEAK TO ONE OF OUR EXPERT HMO MORTGAGE BROKERS TODAY
What is an interest only HMO mortgage?
An interest only HMO mortgage is a mortgage, where you will only repay the interest on the principle amount borrowed. This can be useful for investors on HMO mortgages, whereby they build this into their cashflow. However, for residential mortgages it requires more planning as “sale of security” isn’t so much of a widely accepted exit strategy for mortgages on primary residence.
What is a HMO mortgage?
A HMO mortgage is used to purchase a property that you intend to rent out to a residential tenant on one tenancy agreement. Usually people take Interest only but capital repayment HMO mortgages are also available
Do I need to repay an interest only HMO mortgage at the end of the term?
Many HMO mortgages operate on an interest-only basis. This implies that when the mortgage term concludes, the initial amount you borrowed remains unpaid. Therefore, a repayment strategy for this principal amount is essential. While you can always make extra payments alongside your interest during the loan’s tenure, it’s vital to have a game plan for settling the rest. Repaying the HMO mortgage can be achieved through channels like drawing from other investments, utilising savings, or opting to remortgage the property.
Can I overpay on my interest only HMO mortgage?
Yes, some lenders offer a 10% overpayment facility, per annum.
This means that if your principal loan was £125,000 then you could repay £12,500 per annum as an overpayment without incurring a penalty within your fixed term.
However, it is important to note that many lenders are stripping this from their product ranges, so it is always worth checking to avoid paying exit fees on amounts repaid.
How do I get a HMO mortgage with bad credit?
Just like standard HMO mortgages, there are also HMO mortgage lenders that allow for applicants with adverse credit. So whether you have missed payments, CCJs, defaults or even an IVA, we can still source you with a suitable HMO lender. If you have discharged from bankruptcy then your options will become better after 3 years and also subsequently 6 years.
Can I live in my HMO property temporarily?
Most HMO mortgages operate outside the umbrella of the financial services compensation scheme, meaning they’re unregulated. If you’re contemplating temporarily residing in your HMO property, even temporarily, a shift in your mortgage product may be necessary. If your HMO mortgage lender became aware of you residing in the property, they could ask you to remortgage immediately and or request the loan to be repaid in full.
Can First time buyers get a HMO mortgage?
Yes.
Some lenders who offer HMO mortgages to first time buyers may limit the loan size to their maximum residential mortgage affordability. This will help the lender reduce any “back door HMO buy to lets” this term is used by lenders for applicants looking to exploit the HMO mortgage affordability rules to gain a higher loan size than they would otherwise be able to.
There is a way around being limited on loan size, you could buy on bridging first, refurb and refinance as a “property owner” rather than a first time buyer.
HMO failing on minimum rooms sizes
If your HMO does not need a licence and is not inside Article 4 and your mortgage lender has declined your application due to lack of living space under HMO guidlines, this may be because of uncertainly due to a cross over in advice.
At Mortgage Lane we have seen this scenario a lot of times. Sometimes you just can’t convince the valuer or the real estate team within the lenders underwriting team that you therefore don’t need to comply with the specific councils requirements on living space sizes. Rest assured we do work with lenders that have understood this property type.
Buying an old HMO without planning with grandfather rights?
Buying an old HMO can indeed come with its challenges. Article 4 came into effect in different areas at different times and for HMOs that were created prior to this, when evidence they may be eligible for a Certificate of Lawful Use (COLU). Without this a HMO mortgage lender will not be able to be sure that your HMO is a lawful dwelling so it is important you get this from your vendor when purchasing. If you haven’t got this and you are struggling to remortgage you may be able to gather evidence of your HMO being in place since before the directive was introduced and apply for a COLU on the planning portal. We can’t given planning advice so we recommend you speak to a planning consultant regarding your HMO.
Where do you broker HMO mortgages in the UK?
200
We assist our clients with HMO mortgages in England, Wales, Scotland and Northen Ireland.
Are HMO mortgages regulated?
It is important to note that HMO mortgages are not covered by the Financial Services Compensation Scheme, so borrowers should ensure they are dealing with a reputable lender.
Can I get a HMO mortgage without planning permission?
If the property is inside the Article 4 map (please refer to your local council for this), securing planning permission is vital when applying for an HMO mortgage. For those exploring the HMO mortgage market, it’s crucial to understand that lenders mandate planning permission for HMO properties. This is a fundamental step in the HMO mortgage application process.
For more information on Article 4 please see our blog here, or FAQ here
Key Aspects of Planning Permission in HMO Mortgage Applications:
Regulatory Compliance for HMO Mortgage Approval: Lenders require planning permission to ensure that the HMO property adheres to local authority regulations, a critical factor in approving an HMO mortgage.
Risk Assessment in HMO Mortgage Lending: From an HMO mortgage lender’s perspective, planning permission is integral to risk management. Its absence can lead to potential legal and regulatory issues, impacting HMO mortgage feasibility.
Impact on Property Valuation for HMO Mortgage Terms: For HMO mortgage considerations, the presence of planning permission significantly influences the property’s valuation. Lenders assess this in determining the loan-to-value ratio of the HMO mortgage.
Strategies for Potential HMO Mortgage Borrowers:
Ensuring Compliance for HMO Mortgage Eligibility: Before seeking an HMO mortgage, ensure your property has the necessary planning permission. This is not only a lending requirement but also a legal necessity for operating an HMO.
Expert Consultation for HMO Mortgage Readiness: Engaging with professionals who specialise in HMO properties can be beneficial. They can provide essential insights into acquiring planning permission, a pivotal step in the HMO mortgage process. Speak to an expert at Mortgage Lane today!
Conclusion:
The path to obtaining an HMO mortgage invariably involves securing planning permission. Recognising its importance can significantly streamline your journey in securing an HMO mortgage, aligning your property investment with both legal and financial requisites.
Can I get a HMO mortgage near a power station or powerlines?
Yes.
It is important to let the mortgage broker know this information early on to avoid any declines, some lenders may reduce the loan to value after valuation if they were not aware of it; however, there are plenty of lenders that will lender up to 75% Loan to Value on a HMO mortgage near a power station or powerlines.
What is the minimum loan size on a HMO mortgage?
When it comes to obtaining an HMO mortgage, the minimum loan size typically starts at £25,001. However, it’s important to note that this figure can vary significantly from one lender to another in the HMO mortgage market.
Key Insights on Minimum Loan Size in HMO Mortgage Products:
Lender Variability in HMO Mortgage Offers: While £75,000 serves as a general baseline, each lender in the HMO mortgage sector has its own set of criteria and thresholds. This means the minimum loan size for an HMO mortgage can differ based on the lender’s policies and risk assessments.
Assessing Your Needs for an HMO Mortgage: It’s crucial for potential borrowers to evaluate their specific financial requirements and compare them against various HMO mortgage products. This includes understanding the minimum and maximum loan amounts available in the HMO mortgage landscape.
Navigating the HMO Mortgage Market: Since the HMO mortgage market comprises a wide range of products, borrowers are advised to conduct thorough research or consult with mortgage specialists to find an HMO mortgage option that aligns with their investment strategy and financial capacity.
Advice for Prospective HMO Mortgage Borrowers:
Research and Comparison: Investigate different HMO mortgage lenders to understand their varying minimum loan sizes. This will help in selecting an HMO mortgage that best suits your financial situation.
Professional Guidance: Seek advice from mortgage advisors who specialise in HMO mortgages. They can provide insights and recommendations tailored to your specific requirements, ensuring you choose an HMO mortgage product that fits your investment goals.
Conclusion:
The minimum loan size for an HMO mortgage generally starts at £25,001, but it’s essential to recognise the variability among different lenders. Proper research and expert advice can guide you in selecting the most suitable HMO mortgage option for your property investment needs.
What income do I need to get a HMO mortgage?
Whilst some HMO mortgage lenders do enforce a minimum income requirement (often £25,000), the majority of lenders do not have a minimum income requirement, as long as some level of an income can be evidenced.
What is a day one HMO mortgage?
A “day one mortgage” allows you to remortgage your property without the traditional waiting period. Historically, many buy-to-let lenders adhered to a “six month rule”, which posed challenges, particularly for investors employing the Buy, Refurb, and Refinance (BRR) strategy. If you’re an investor looking to capitalise on this approach, the good news is you no longer have to wait 6 months to remortgage the property based on its updated post-refurbishment valuation!
How much deposit will I need for a HMO mortgage?
HMO mortgage lenders will usually want at least 20-25% of the property’s value because of the increased risks linked with these properties. In simple terms, they’re typically willing to lend you up to 75% of what the property is worth. We’re connected with other specialist lenders who might entertain a loan at an 80% Loan to Value ratio. However, such offers are generally earmarked for borrowers with a background in property rental. But lets not forget, whatever the maximum loan to value is, the property will need to “stress up” to be eligible for the loan size and therefore it will need to be affordable on its producing rental income.
What are the advantages of using interest only mortgages with HMOs
Some investors may be making 15-25% returns on money they are investing into property, therefore having the option to defer capital payments can be advantageous to cash flow. If for example the interest rates are 7% and you choose to continue to borrow at that rate, you will need to make at least a 7% return, per annum to break even on your cost of borrowing. For investors able to make higher returns, there is a possibility of making profit whilst taking interest only HMO mortgages.
Can I reside in my HMO property
Most HMO mortgages are unregulated, which means it is not covered by the financial services compensation scheme. Therefore if you indent to live in your HMO, you will need to change the product.
Warranty required for a recently converted or newbuild HMO?
When securing an HMO mortgage for a new build or a converted House in Multiple Occupation (HMO), the requirements can vary. For conversions, a Professional Consultant’s Certificate (PCC) is often preferred due to its cost-effectiveness. However, for new build HMOs, some lenders still require a new build warranty.
Professional Consultant’s Certificate for Converted HMO Mortgage Applications:
Affordability of PCC in HMO Mortgage: A PCC is commonly used for HMO mortgage applications on conversions, offering a more affordable option than a new build warranty. It provides assurance that the conversion adheres to building regulations, a key concern for lenders.
Compatibility with HMO Mortgage Requirements: Lenders specialising in HMO mortgages typically accept PCC for converted properties, recognising its role in verifying compliance and structural integrity.
New Build Warranty for New Build HMO Mortgage Applications:
Requirement for New Build HMOs: For new build HMO properties, a new build warranty is often a requisite. This warranty offers a guarantee against structural defects for a defined period, usually 10 years, and is a critical element for lenders in mitigating risk.
Lender Preferences in HMO Mortgage: Some lenders insist on a new build warranty for HMO mortgages on new constructions, considering it a necessary safeguard.
Mortgage Lane’s Expertise in HMO Mortgage Solutions:
Navigating HMO Mortgage Complexities: As specialists in HMO mortgages, Mortgage Lane is adept at understanding and meeting the varied requirements of lenders, whether for conversions with PCCs or new builds requiring warranties.
Tailoring Solutions for HMO Mortgage Applicants: We guide borrowers through the process, ensuring they connect with lenders offering the most suitable and cost-effective HMO mortgage options for their specific property type, whether it’s a new build or a conversion.
Conclusion:
Understanding the distinct requirements for HMO mortgages on new builds and conversions is crucial. While a PCC is often sufficient for converted HMOs, new builds may necessitate a new build warranty. Mortgage Lane stands ready to assist borrowers in navigating these requirements, ensuring they find the right HMO mortgage solution for their property.
Can I get a buy to let mortgage on a HMO?
Sometimes HMO mortgage products allow for small HMOs, however, larger HMOs in the realms of 5 bedrooms plus may require a specific HMO product. Large HMOs again, 6 rooms and about that have been configured to be “fit for purpose” as a HMO, namely with En-suites etc, those assets usually seek a hybrid valuation to appreciate the investment bearing on the valuation, alternatively we can also seek commercial mortgage lending on the properties where necessary.
Do I need a minimum income for a HMO mortgage
No
Historically some lenders did have a minimum income for HMO mortgages, however, a lot no do not. There are still a few that require a minimum income, but rest assured that if you are earning below £25,000 there are plenty of HMO mortgage options out there for you.
Can I use a HMO mortgage if I am buying at auction?
Yes. However, it is not advised, especially if you are buying in a traditional auction with just 28 days to complete. Traditional auctions are more generous on time, but if you are buying via the traditional auction route then it is unlikely you will get a HMO mortgage offer and subsequently, legal searches of which some councils are taking over 6 weeks to return.
What entities can take a HMO mortgage?
We arrange cost-effective HMO mortgages for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
Will I need a Fire Risk Assessment for a HMO Mortgage?
Yes.
It is important for HMO buyers that they arrange or sight a copy of the Fire Risk Assessment for a HMO, this is usually requested at legals.
As these fire risk services usually take 2 weeks to return a report, this can hold up your completion if it is not arranged sooner.
TITLE RELATED TO BLOGS ON MORTGAGES
At Mortgage Lane, we see the most complex of HMO mortgage applications, some of which make a good read for investors looking to learn from other applicants challenges, or for those effected by the topics! See more HMO mortgage topics covered in our blog here.
BEGIN YOUR HMO MORTGAGE JOURNEY WITH US TODAY
Let us know about your enquiry and one of the team at Mortgage Lane will be in contact to assist!