Finance4 an HMO mortgage

HMO mortgage advice from the experts at Finance4

HMO PROPERTY DEFINITION: A house or flat let to 3 or more tenants who form 2 or more households, in Scotland 3 or more tenants in 3 or more households. In Scotland all HMO properties require a licence, in England and Wales only certain types of HMO property requires a lience.

We consider a house of multiple occupancy mortgage or HMO mortgage to be necessary for any property where the rental value is to be assessed on a room by room basis, regardless of whether the property will be licensed or not.

Even though multi let or bedsit properties are pretty much the only way to make a profit from buy to let these days, most lenders still do not offer an HMO mortgage.

Does your property need a house of multiple occupancy mortgage or HMO mortgage?

If the property has three or more storey's, and is occupied by five or more people, living as two or more households, and sharing some basic facilities: an HMO licence is mandatory for this type of property, and so would require an HMO mortgage. A two storey building occupied by five unrelated tenants may not require an HMO licence, but would still need an HMO mortgage. This is because most lenders do not offer an HMO mortgage and will insist on the property being let to one household on one AST agreement, naturally they will assess the rent differently to a multi let situation. Even fewer lenders will consider a mortgage for a property divided into bedsits.

Many residential buy to let lenders would veto a property which has shared facilities such as kitchen or bathroom, or indeed any property where there are multiple tenants residing under the one household. For example properties converted into bedsits or into  individual rented rooms would definitely require an HMO mortgage

For expert advice regarding an HMO mortgage please call Finance4 on 0800 019 9605

How can you find the best HMO mortgage?

You will need to talk to an experienced HMO mortgage broker (preferably us) as currently less than ten of around one hundred and fifty banks and building societies offer an HMO mortgage or bedsit mortgage. You would be surprised how many landlords come to us having wasted time and money applying for a house of multiple occupancy mortgage (HMO mortgage) to the wrong lender (often on a brokers advice)

Of the lenders that do offer an HMO mortgage or bedsit mortgage, the criteria varies considerably. For instance the maximum number of bedrooms goes from a low of six with three of the lenders, to up to twenty with another. To get an HMO mortgage with a lender such as Paragon, you will need to be able to demonstrate three years general buy to let experience. Some HMO mortgage lenders will insist that the HMO licence is in place prior to releasing funds, others are happy to see proof of an application, others will just take your word for it.

We would need to know your exact circumstances before recommending an HMO mortgage so please call us on 0800 019 9605

For a property in poor condition you might consider an HMO refurbishment mortgage:

Many investors are turning to properties that need work to be carried out prior to letting or being granted an HMO licence. This situation often results in an HMO mortgage being offered, but with a full retention, this can mean a huge outlay for both purchase and refurbishment.

We now have three lenders that will offer an HMO mortgage (house of multiple occupancy mortgage) on properties even if they are considered unlettable.

Part one of the HMO mortgage or bedsit mortgage would be 85% of the purchase price, without the need for a rental assessment. At the beginning of the HMO mortgage application you would submit details of proposed improvements, a schedule of works and an estimate of the costs involved.

Part two of the HMO mortgage would be releasing funds of up to 85% of the improved value, subject to re inspection of the property.

A good example of how this HMO mortgage might work is:

Purchase price = £160,000

Cost of improvements = £40,000

Total investment = £200,000

Anticipated end valuation = £240,000

Part two of the HMO mortgage release = £204,000

Please call Finance4 on 0800 019 9605 for more details regarding this HMO refurbishment mortgage