HMO Mortgage and Buy to Let Mortgage Brokers.


Do I need a HMO Mortgage?

If you are mortgaging a property that is let to individual tenants you will require a HMO mortgage. A HMO mortgage is a specialist  type of BTL mortgage. They are for properties that are  let to a group of tenants rather that to one tenant on an Assured Hold tenancy Agreement. These types of properties are often more profitable as you will charge per room rather than for the house. As there are unrelated occupiers the mortgage lenders  require you take out a specialist mortgage called a House in multiple occupation. They are often let to individuals who cant afford to rent a house on their own such as student lets or individual workers.

How many tenants do I need to have for an HMO?

If a property has 3 ore more tenants who are not part of the same household, you will need a HMO . They will occupy and rent individual rooms and have a shared kitchen a communal space. Mortgage lenders have varied criteria regarding what they define as a HMO so it is essential to speak to an adviser to make sure that the right lender is approached. The difference in interest rate can be quote varied between lender also.

A house share is used for smaller properties and they do not require licensing – more below. Normal buy to let lenders do not allow for the letting of a property under multiple tenancies. If a normal buy to let mortgage is obtained and a lender checks this i.e. via HMO register, the penalties can be quite severe. The lender could recall their mortgage and consequently would affect your credit score. A HMO is typically fully furnished and suitable for individual tenants, students or contractors usually targeted at city centres or universities.


What is Interest Cover Ratio?

As with buy to lets, lenders impose an Interest Cover Ratio (ICR) which is usually 170% regardless of tax status. HMOs are particularly niche mortgages types so rates are generally higher. Having higher rate mortgages is a consideration when considering rents as these can eat into the yield you expect to receive. Also lenders will have a maximum of rooms they will accept as it will fall into the commercial mortgage bracket. Again not all HMOs require licensing however MAC will ensure that all the research is carried out on your behalf.

Generally a HMO mortgage lender requires quite a bit of paperwork and there are much longer processing times. MAC have a lot of experience in dealing with HMOs and we therefore are able to predict what paperwork the lender is looking for. Also, the type of tenant you are looking to occupy the property can affect the lender’s decision for example housing benefit tenants or students where the income could be jeopardised.

Do I need an HMO License?

Licensing by the local authority is sometimes required for larger properties with multiple tenants because there is a potentially higher risk involved. This applies to some HMOs in some areas, but not all. Licences are given to people with a clean landlord track record. Whilst central government have licensing requirements, local councils may have additional criteria owing to the geographical area of the property or a certain type of property.

Properties with three stories that have five or more tenants from at least two separate households require a license.


What criteria do Lenders Require?

The criteria of many lenders are:

  • Have at least 2 years as a standard BTL landlord or 1 year HMO;
  • A property must have no more than four habitable storeys and no more than one kitchen;
  • Properties consisting of more than one self-contained unit under a single title are not
  • The property must offer a communal seating area;
  • Evidence of rental payments and a copy of the tenancy agreement may be requested to
    support non-standard tenancies;
  • They won’t lend to an applicant if they have a family member renting the property; and
  • May require an agency to manage the HMO rather than yourself.

This list is not exhaustive. It can take a few months for the application to be processed by the local council and they will scrutinise both the property and the landlord for suitability. The licence must be renewed every five
years and there are usually legal conditions attached to licences which are outlined here and this list is not exhaustive:

  • A HMO landlord must be considered a fit and proper person with no unspent convictions, verdicts of unlawful discrimination or breaches of housing law;
  • Landlords must provide the council with annual gas safety certificates;
  • Electrical appliances and furniture must be in a safe condition – the landlord may be asked
    for safety certificates for furniture and appliances;
  • Smoke alarms are installed and kept in proper working order;
  • Tenants must be given a written statement of the tenancy agreement;
  • Bedrooms must be of a minimum size;
  • Landlords must cooperate with the council’s demands on waste disposal; and
  • If a landlord is found to be in breach of any of these conditions they risk a fine.


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