What costs come with purchasing an HMO? And how do the mortgages differ from standard buy to let mortgages? In this blog, we answer everything you need to know to help you get started.
With the potential for higher rental yields, multiple income streams from a single property, and strong demand in many urban areas, HMOs can be a great way to boost your property portfolio.
As a more complex property investment type, there are some challenges to be aware of. From licensing requirements to specialist mortgage valuations, financing an HMO isn’t always as simple as a standard buy to let.
This blog covers the key things you need to know before you get started with HMOs.
What is an HMO?
An HMO (House in Multiple Occupation) is a property rented to multiple unrelated tenants who typically share communal facilities like kitchens and bathrooms. It’s a more specialist type of investment in the mortgage world, so while it comes with higher risks, it also has the potential for greater rewards.
HMOs are a considerably popular investment type amongst landlords and property investors, with the main benefits for landlords being the higher rental yields and tenant demand. With multiple tenants paying rent, you’re protected from any rental void periods, so you can still pay the mortgage on the property.
Are HMO Mortgages Different to Standard Mortgages?
Financing an HMO isn’t too dissimilar to standard buy to lets, but the main difference is the valuation process. You’ll need a specialist report from a qualified surveyor, and your solicitor will need to confirm that the correct licensing is in place. These extra steps are crucial to ensure compliance and protect your investment.
Am I Eligible for an HMO Mortgage?
Most lenders want to see some experience when it comes to HMO properties. Managing an HMO involves more wear and tear, higher tenant turnover, and generally more hands-on involvement. Many lenders will want to see that you have at least 1 year of property investment experience, but there are options for first-time landlords, too.
How Much Can I Borrow?
HMO mortgages are available up to 85% LTV, but higher borrowing usually means higher interest rates. The sweet spot tends to be around 75% LTV, where you’ll find the most competitive rates. It’s all about balancing your borrowing needs with the cost of finance.
Speak to us to find the most cost-effective HMO mortgage rate to suit your needs.
Other Than My Deposit, What Costs Can I Expect?
Beyond your deposit, you’ll need to budget for:
- Lender assessment fees
- Valuation fees (which are typically higher for HMOs)
- Legal fees
These costs can add up quickly, so it’s essential to plan ahead and budget accurately.
Do I Need a Special Licence to Run an HMO?
Licensing requirements vary depending on the size of your property and your local council’s rules. Generally, HMOs with five or more unrelated tenants will require a licence, but smaller properties may also need one, depending on the area, so always check with your local authority before you purchase.
It’s also important to note that your lender will want to see the HMO licence (if required) on your mortgage application or, at the very least, that you have applied for one before they proceed to offer.
How a Mortgage Broker Can Help
Finding the right deal for your HMO property can be difficult, but that’s where we come in.
As a whole-of-market mortgage broker, we specialise in complex property finance. Whether you're converting a property, refinancing, or expanding your portfolio, we'll find you the best rate to suit your needs.
Call us on 0345 345 6788 to explore your HMO mortgage options or submit an enquiry here.
