HMO mortgages for UK landlords
Houses in Multiple Occupation (HMO’s) present a great opportunity for landlords because properties of this type commonly offer a higher than average rental yield compared with standard buy to lets.
HMO’s can require more work to maintain, so familiarise yourself with your responsibilities and ensure you are prepared to undertake the work involved before you invest.
Why HMO property may offer higher rental yields
When you buy an HMO property, the rental income from multiple rooms (as opposed to renting the property out as a single dwelling) often results in higher income and therefore is more profitable than renting the property to a single family unit.
Below is an example of how higher rental yield can be achieved by letting a property as an HMO.
A landlord owns a three-bedroom house. The landlord could rent the property to one family unit for £700pm.
However, if the landlord rented out each of the 3 bedrooms to different people, with a monthly rent of £350 per room per month (assuming this is realistic for the property), this would mean a total of £1,050 from three individuals and an increase in overall rental income of £450 each month on the property.
It may also be possible to convert reception rooms into bedrooms (which a family may not choose to do) and therefore increase the potential rental income even further.
Today’s HMO mortgage deals
The table below highlights a selection of 10 HMO mortgage deals sorted by lowest initial rate, that we can access from across the marketplace today, the table updates twice a day so this table represents the very latest deals we can offer.
|Rate||Product||Monthly cost||LTV||Lender fee||APR|
|1.54% then 5.74% Fixed for 27 months||Fixed for 27 months||£128||60%||£2,034||5.10%||Enquire|
|1.64% then 5.74% Fixed for 27 months||Fixed for 27 months||£136||60%||£1,034||5.10%||Enquire|
|1.64% then 5.74% Fixed for 21 months||Fixed for 21 months||£136||60%||£2,034||5.30%||Enquire|
|1.64% then 5.74% Fixed for 21 months||Fixed for 21 months||£136||60%||£3,034||5.40%||Enquire|
|1.65% then 5.44% Variable for 63 months||Variable for 63 months||£137||60%||£2,034||4.40%||Enquire|
|1.69% then 4.59% Fixed for 26 months||Fixed for 26 months||£140||60%||£1,745||4.40%||Enquire|
|1.70% then 5.44% Variable for 27 months||Variable for 27 months||£141||60%||£2,034||5.00%||Enquire|
|1.89% then 4.59% Fixed for 26 months||Fixed for 26 months||£157||60%||£1,250||4.40%||Enquire|
|1.90% then 5.44% Variable for 27 months||Variable for 27 months||£158||60%||£35||4.80%||Enquire|
|1.90% then 5.44% Variable for 27 months||Variable for 27 months||£158||70%||£2,034||5.00%||Enquire|
Important: Lender fee is calculated based on a loan amount of £100,000.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE.
*Some lenders offer mortgages with no fees; however, our broker fee of up to £1,198 for Buy to Let first mortgages and up to £2,198 for Buy to Let secured loans will apply.
This table includes both Purchase and Remortgage rates. Speak to our advisors for a personalised recommendation.
What qualifies as an HMO property?
An HMO is a house or flat, let to 3 or more unrelated people, that share facilities such as a bathroom or kitchen.
What is a Multi-Unit Block?
We can also source mortgages for multi-unit blocks. These are classified as anything from a semi-detached house split into two self-contained flats or a new purpose built block of 20 self-contained flats on one freehold title.
Do I need an HMO licence?
You must have a licence if you’re renting out a large HMO. Your property is defined as a large HMO if all of the following apply:
- It is rented to 5 or more people who form more than 1 household
- It is at least 3 storeys high
- Tenants share toilet, bathroom or kitchen facilities.
Even if your property is smaller and rented to fewer people, you may still need a licence depending on the area the property is located in.
If unsure, check with your local council.
Applying for an HMO licence
The UK government's website offer a postcode based search in order to identify which council issues licences for your property, and where you can access further information regarding HMO's and their licensing:
- Apply for an HMO Licence in England or Wales
- Apply for an HMO Licence in Scotland
- Register an HMO in Northern Ireland
Failure to apply for a licence when one is required can carry a fine of up to £20,000 plus costs.
It is worth noting that:
- If you need a licence for your HMO, you will need a separate licence for each HMO you run
- Councils may have long timeframes (months) for processing a licence, so plan ahead
- There are conditions associated with an HMO licence, including (but not limited to):
- The property must have adequate space and facilities for the residing tenants
- The manager of the HMO (you or the agent) must be ‘fit and proper’ e.g. no criminal record or breaches of landlord laws or codes of practice
- Gas certificates must be updated annually and sent to the licensing council
- Smoke alarms must be installed and maintained
- Safety certificates for all electrical appliances must be available on request
- If you fail to meet the conditions on a licence without a reasonable excuse you are committing a criminal offence and could face a fine of up to £5,000.
What differentiates HMO mortgages from standard buy-to-lets?
There are a couple of differences between standard buy-to-let and HMO mortgages, most notably in availability, product rates and lender fees.
As HMO’s have multiple occupants, they are deemed a higher risk to loan money against than a normal buy-to-let. This is because HMO tenants tend to have a more transitional and/or seasonal (e.g. students) lifestyle, which can mean higher levels of tenant turnover and voids, should one or more of the tenants move out without immediately being replaced.
A single family unit in a standard buy-to-let will tend to be more settled with longer term plans to reside in the property.
Secondly, due to the aforementioned risk with lending to an HMO and the specialist nature of the mortgage, the lender’s fees are often higher on HMO-specific products.
Questions on HMO classification in England
The property is
- Occupied by asylum seekers, migrant or seasonal workers
- A refuge for victims of domestic violence
- Higher or further education student accommodation
Do these tenant types fall outside HMO classification? No, they do not
The property is:
- Occupied by the resident landlord and a maximum of two tenants who are not part of the landlord’s household
- Occupied by a maximum of two people
Do these circumstances fall outside HMO classification? Yes, they do.
Source: Gov.uk “Licensing of houses in multiple occupation in England: a guide for landlords and managers”
HMO mortgage criteria
Every lender will have their own specific set of lending and product criteria, the summary below is meant to serve as a general guide for the lenders we have access to and is not exhaustive:
- Loan amount: from £25,000 - £15m
- Maximum loan to value: up to 85% LTV
- Unlicensed HMOs: can be submitted for consideration (the property may need to be in licensable condition and let on a single AST agreement), your advisor will guide you on potential lenders
- Self-contained units: no maximum with some lenders
- Individual rooms: no limit on number with some lenders
- Multiple kitchens: may be considered
- Tenancy agreements: individual rooms or joint and severally liable tenancy agreements are eligible dependent on the lender
- Tenants receiving benefits: may be considered with some lenders
- Affordability tests: may include rental for each room or flat.
All of the above is subject to each lender’s criteria.
Please speak to an advisor regarding your specific needs and circumstances so that we can make a tailored mortgage recommendation.