Let Us Help You Understand More About Houses in Multiple Occupancy (HMOs)
What is an HMO property?
HMO stands for ‘House in Multiple Occupation’.
Most HMOs are houses or flats shared by several different tenants, who all rent their rooms and the property’s communal space on an individual basis. Sometimes called a “house-share”.
However, HMOs can also be:
- Hostels
- Several bedsits in a large building
- Blocks of converted flats
- Self-contained cluster flats
Essentially, an HMO is any property housing three or more tenants who make up more than one household (i.e. not related) and share toilet and kitchen facilities (such as a shared student property) is classified as a HMO in England and Wales. If the property is let to five or more people, it is classified as a ‘large’ HMO. Large HMOs require licenses from the local council, which are subject to an inspection and must be renewed every five years.
Mortgages for HMOs
Lenders consider HMOs as specialist properties, which means getting a mortgage on one can be more complicated and expensive than if you were letting a standard home. Previously, a property was only classified as an HMO if it was at least three storeys high, but this rule was removed in England and Wales, pushing thousands of rented homes into the HMO category. The usual deposit required is 25%.
HMOs have always been a popular choice with professional landlords looking to increase rental yields due to the potential provided by having multiple paying tenants. However, HMOs are not suitable for everyone, and we always advise that you speak to an accountant or Solicitor before considering any investment property purchases.
HMO mortgages
HMO mortgages differ from standard buy-to-let mortgages in that they allow the letting of multiple rooms to multiple people, which normal buy-to-let mortgages don’t allow.
There are a whole host of HMO mortgages available, depending on which stage the HMO property is at, and these include:
- Development loans for build and construction
- Refurbishment loans
- Mortgages and re-mortgages for new and existing HMOs
There is a choice of HMO mortgages available for most borrowers and will vary in terms of length of mortgages, period of any fixed-rate offer and interest rate. We will quote you based on your specific circumstances and situation.
There are several factors that always come into consideration when handling HMO finance applications, but we are confident we can find the right HMO mortgage for you. In many cases potential lenders only can be accessed through intermediaries like ourselves. Factors to consider:
Assured Short hold Tenancies (ASTs)
Check the number of ASTs you have in place with your HMO tenants. Some HMO mortgage lenders accept multiple ASTs and others will only accept one.
HMO licensing
Check your HMO property is correctly licensed. Properties with 5 or more bedrooms, occupied by more than 1 household, who are sharing facilities need to be a licensed with the local authority. HMO mortgage lenders will require the appropriate license to be in place before releasing funds. It is not a given that you will be issued an HMO license by your local authority, so it is essential to investigate this in advance.
For more information please click here to download our HMO guide.
Contact Us
For more information about anything relating to your investment mortgage or protection or insurance, please get in touch with your Adviser or
Email: info@swmortgages.com
Call: Bristol office 0117 325 1511, Bath office 01225 584 888 or Exeter office 01392 690 888
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