HMO Mortgages

The definition of an HMO is dependent on how the local authority defines it and will often require the landlord to obtain an HMO license.

There are several subcategories of tenant types that may be viewed differently by individual lenders for HMO mortgages, for example some lenders would not accept student lets but these types of tenancy agreements would generally be considered as HMOs.

If the property is a larger HMO (where there are more than 7 bedrooms) then usually additional Sui Generis* planning consent is required. The property may also need to have an approved change of use but this can be confirmed by your planning department.

* Sui Generis Planning is a planning application for the change of use of a property from one use class to another under the Sui Generis category. 

HMO mortgages work similarly to a standard buy to let mortgage  but HMOs are usually rented on a room by room basis and as such the landlord can have individual tenancy agreements for each room or a collective agreement for all occupants of the property. It is worth noting that most lenders are happy with either scenario but using a broker can help ensure an appropriate lender is selected to meet the particular set up the landlord has in place.

HMO mortgages work similarly to a standard buy to let mortgage  but HMOs are usually rented on a room by room basis and as such the landlord can have individual tenancy agreements for each room or a collective agreement for all occupants of the property. It is worth noting that most lenders are happy with either scenario but using a broker can help ensure an appropriate lender is selected to meet the particular set up the landlord has in place.

HMOs offer an excellent opportunity for landlords looking to grow their portfolios and often provide higher rental yields than renting a property to a single household as the rooms are usually let separately to individual tenants. For tenants, HMOs can be a more affordable and flexible alternative than renting a whole property for themselves.

Landlords can opt for their mortgage to be either on a capital repayment or interest only basis and the majority of lenders who accept HMO applications will normally have:

• Fixed rate HMO mortgages – various lengths of fixed rate periods available (generally 2-5 years)
• Variable rate options such as Base Rate Tracker deals or discounted variable rates.
• Special Purpose Vehicle (SPV) –  Some lenders will also lend to Limited Companies via a Special Purpose Vehicle  and the director(s) will then have to provide an additional personal guarantee(s).

HMO mortgages are usually priced separately from standard buy to let mortgages and will generally have higher valuation fees than standard buy to let mortgages where no valuation incentive is included as part of the product. Lenders that offer HMOs will usually also have separate pricing in place for small HMOs (generally up to 6 occupants) and large HMOs (7+ occupants).