Looking for an HMO Mortgage?
Getting a Buy-To-Let Mortgage for Homes in Multiple Occupation doesn’t have to be complicated.
At Accelerated Finance, we have a wealth of experience dealing with a variety of lenders, including those who specialise in HMO Buy-To-Let Mortgages.
How Can We Help
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Loan to Value up to 80% (100% with additional security)
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HMO Finance from £150,000
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First-Time Landlords Welcome
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Licensed and Unlicensed HMOs
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Funding solutions for portfolios with no limit on number of properties
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Interest-only lending terms available
The Following Topics Are Covered Below
Author- Aakash Nagrani CeMAP CeRER
What Is An HMO?
What Is An HMO Mortgage?
How Profitable Is An HMO?
Do You Need A Licence To Run An HMO?
Tenants to Target For HMOs
What Kind Of Tenancy Agreement Do I Need To Run An HMO?
Why Become An HMO Landlord?
Lending Criteria for HMO Mortgages
How Much Will HMO Finance Cost You?
What Is An HMO ?
An HMO (House in multiple occupations) is a property that is let to multiple different households
For the property to be an HMO the whole building, or even part of the building needs to fall within one of the following categories:
A building or flat in which more than one single household shares an amenity – for example, a bathroom, toilet, or cooking facilities.
This is the most common type of HMO and applies to share houses for example student lets, professional lets.
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Tenants share one or more of the basic amenities or the accommodation lacks one or more of these amenities (defined as a toilet, personal washing facilities and cooking facilities)
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The building does not entirely consist of self-contained units
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At least three people occupy the building who make up more than one single household
A property that has been converted and does not comprise self-contained flats (doesn’t share amenities)
What Is An HMO Mortgage?
The main difference between an HMO mortgage and a buy-to-let mortgage is that you can expect to net a much higher yield from an HMO, although there is a greater management level required to maintain the property and the rent will normally be all-inclusive of associated bills, water, gas, council tax, etc.
Not all buy-to-let lenders will provide HMO mortgages, although in recent years the landscape of lenders has evolved and more lenders will be open to agreeing to lend depending on the type of tenancy in place.
How Profitable Is An HMO?
Prospective landlords may see HMO properties advertised for sale offering “100%+ gross yields,” but you’ll need to be aware that the costs of setting up and running HMO properties are considerable, so the key figure is net yield. Realistically you might expect an ROI of 8-10% a year on an HMO, compared with a 4-5% on a single buy to let.
HMO landlord costs include:
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conversion costs, including installing extra bathroom(s) and kitchen(s), fitting fire doors, door closers and locks
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finance costs
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council tax (usually paid by the landlord)
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utility bills
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insurance
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repairs and maintenance
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management costs
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rent arrears
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voids
Profits may be maximised by running the property through a limited company structure: you’ll need to take advice from an accountant / financial adviser.
Do I Need a Licence To Run An HMO?
You don’t need a licence to run a standard HMO with four or fewer occupants. Landlords do need an HMO licence to operate a Large HMO, which will usually be valid for five years - which is why they are sometimes referred to as Licenced HMOs.
Smaller HMOs, which don't need to be licensed, have commonly been referred to as "unlicensed HMOs," but the term can seem to suggest that they are somehow illegal or fly-by-night. Some owners, local authorities and lenders refer to these smaller HMOs as multi-lets, "HMOs Not Required To Be Licensed," or "non-licensable HMOs".
The different mortgage lenders for these specialist buy-to-let mortgages may have different definitions and requirements for their HMO lending.
Tenants To Target For HMOs
With the cost of buying a home still rising, the demand for affordable rented accommodation remains very strong. Local listing sites (Gumtree, Zoopla, Rightmove…) will help first-time landlords to assess the strength of demand from prospective tenants:
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Low-cost / affordable housing / housing benefit tenants: some landlords decide to let their whole properties to local authorities for use as low-cost housing, at a discount but gaining an assured, continuous income.
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Students: can have their rent guaranteed (often by parents) and usually have a natural study-course limit to the length of their tenancy.
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Working professionals: increasing numbers are renting into their late 20s and 30s, looking for higher-spec properties (often with more bathrooms) but they are usually more stable, less party-lifestyle tenants.
What Kind Of Tenancy Agreement Do I Need To Run An HMO
Landlords can manage their HMO property by setting up one "joint and severally liable" agreement covering all the tenants, or using an individual contract for each tenant.
Joint contracts
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Suitable for a group of students or friends moving in together
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Usually require less administration: one overall agreement with one single rent payable (and one deposit to protect, should you decide to take a deposit).
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Tenants are jointly liable for both the rent and the care of the property and are responsible for the bills and council tax themselves
Individual contracts
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More common for large, low-cost HMOs, or inner-city HMOs designed for young professionals
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Each tenant pays his or her own rent separately
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If one tenant fails to pay, the others don’t have to make up the shortfall
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Individual tenancies are more of an administrative burden, with individual deposits to be collected and protected.
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As a landlord, you will be liable for council tax and usually utility bills as well, though you can include this cost in the rent that you charge
Why Become An HMO Landlord?
Higher Rental Income: As a rule of thumb, you might expect to net roughly double the rent. For example, a four-bedroom house let to one family for £900 per month, compared with four individual tenants paying £500 each.
Fewer 'impactful voids': the gap between tenants on a single occupancy property can be at least a month, allowing for repairs, redecorating and viewings, with no rent coming in. With an HMO the rent from the remaining tenants reduces your losses. Some of your costs may be tax-deductible than with a standard BTL
Lending Criteria for HMO's
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The value of the property
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Tenant Type
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How much do you need to borrow
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Expected Rental Income
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The number of rooms to be let. The majority of HMOs buy to let lenders accept a maximum of five to six bedrooms in a building. There's often a misconception that anything larger than this will require a commercial mortgage, however this is not the case. We have access to specialist lenders who are comfortable with up to 20 bedrooms for one HMO
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Location of the property
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Is the property being managed by yourself or through an agent?
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Your Credit Rating
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Some lenders will only give mortgage finance on HMOs to experienced landlords, but lack of experience is no longer a barrier and we work with lenders who accept first-time landlords.
How Much Will HMO Finance Cost You?
HMOs tend to be seen as higher risk than standard BTLs. Because HMO tenants are unrelated they tend to move on more quickly, giving a higher chance of voids and unpaid rents. They're also less committed to the property as their home, and that mean can take less responsibility for its care and upkeep.
HMO lenders will be considering the knock-on effects of these higher risks on your ability to pay the mortgage and this is reflected in the interest rate. To receive a fee-free no-obligation quote, follow this link