HMO mortgages

Buying property with an HMO mortgage?

Buy to let mortgages for HMO properties (houses of multiple occupation) can be a highly profitable investment opportunity for landlords, because each bedroom is let out to a different tenant, so there are multiple rents.

This means this type of property commonly achieves a higher yield than standard buy to lets.

HMO mortgages tend to carry higher rates and fees than mortgages for standard buy to let properties, due to them being deemed as higher risk by lenders.

The risk comes from HMOs often being subject to a higher turnover of tenants, potentially resulting in more rental voids than a standard buy to let. Damage to the property is also more common, because more people tend to live in an HMO.

Nonetheless, the costs are typically far outweighed by the profit achieved from the rental income, which is why HMO property investment is very popular.

Another benefit of an HMO is the lower impact on income when a tenant moves out. When a tenant moves out of a single occupancy buy to let property, all of the rent stops until a replacement tenant moves in. But, with an HMO, you still have income from your other tenants. As a result, void periods can have less of a financial impact.

As a specialist HMO mortgage broker, our advisors have extensive experience in rental property finance, working with complex HMO cases and finding the best deal in the market for our clients.

You may be investing in a property that is a Multi-Unit Freehold Block, we can help with this property type too.

We can also help with HMO mortgages for first time landlords or first time buyers.

HMO mortgage deposits

Whilst some lenders will offer HMO mortgages that require a small deposit (15%-20%), there are even more lenders who offer products with a deposit of 25% or more. As you increase the amount of deposit you put down, you usually find the number of lenders and products available to you increases and the mortgage interest rate decreases.

You will generally find when you invest in rental property that there is no maximum loan amount. What will limit your borrowing is the rent the property is due to receive, because the rent is the method of paying the mortgage interest (or capital repayment) each month.

HMO mortgages with no minimum income

It’s possible to secure an HMO mortgage with no minimum income requirements. Buy to let mortgages in general are not reliant on the applicant’s personal income. The rent from the property covers the mortgage costs.

This is the reason many lenders only need to see some sort of income, but not a particular amount, when offering a mortgage. This is an important point though – it is generally necessary to have a modest alternate income source (whether from other property, some sort of employment or a pension) because there is always a risk of rental voids, where you are not receiving rent but still have the mortgage to pay.

HMO remortgages

An HMO remortgage is not a product, per-say, it is a process. The only big difference with HMO remortgaging over a buy to let remortgage is that it involves HMO properties.

If you do not remortgage when you reach the end of the initial rate period of your existing product, your monthly payments are calculated using your lender’s reversion rate.

This is always a variable rate, which puts you at risk of your monthly payments changing. You will generally find that a lender’s reversion rate is higher than other deals available in the market, so it makes sense to review your options.

Remortgaging your HMO can help you:

• Unlock capital, either by releasing equity as cash from a property already under mortgage, or by taking out a mortgage on a property you currently own outright, or ‘unencumbered’.
• Reduce your monthly payments, if mortgage rates have gone down since your last mortgage
• Protect yourself from further mortgage interest rate rises by fixing your rate, if rates are going up when you come to remortgage.