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There is a growing demand for HMO’s as they can be a lucrative investment. Securing a HMO maximises potential rental income from a single property however there can be rules and guidelines to adhere to. Find out how we can help with your HMO BTL Mortgage Application.
A House in Multiple Occupation (HMO) buy-to-let mortgage is a specialised loan for landlords purchasing properties to rent out to three or more tenants who aren’t a single household but share common facilities such as bathrooms and kitchens. These mortgages have stricter lending criteria, such as higher interest rates, larger deposits, and specific rental income requirements, due to the more intensive management and regulations involved. The growing HMO mortgage market reflects the increasing demand for properties suited for HMO arrangements.
Investing in HMO properties can be lucrative due to higher rental yields compared to single-let properties, as rent is collected from multiple tenants. HMOs also reduce the risk of total rental income loss, as the likelihood of all rooms being vacant simultaneously is low. Additionally, the growing demand for affordable, shared housing in urban areas ensures a steady stream of potential tenants, making HMOs a resilient and profitable investment option.
HMO lending involves specific criteria and requirements that differ from traditional buy-to-let mortgage. HMO Buy-to-Let mortgages tend to have stricter lending criteria. Factors that can influence eligibility are:
While both involve renting out residential properties, the differences in tenant management, income potential, and regulatory obligations make these two approaches suited to different types of landlord investment. Understanding the key differences between HMO Buy to Let and Standard Buy to Let is essential for making an informed decision that aligns with your financial goals and investment style.
When it comes to financing, HMO buy-to-let mortgages are similar to standard buy-to-let mortgages as lenders will be interested in the rental income. One of the key differences is how HMO mortgage affordability is determined as lenders can take the total rental income on a room-by-room basis. Unlike standard buy to let mortgages, which rely on the rental income on a standard assured shorthold tenancy, HMO mortgage affordability primarily depends on the rental income generated by each room. Specialist lenders typically assess this affordability through metrics like rental coverage or debt service coverage ratios, which usually range from 125% to 140% of the rental income. They also consider the nuances between pay rate and stressed rate calculations.
Additionally, interest rates for HMO mortgages can be higher, and lenders may require a larger deposit or experience as a landlord. This is due to the perceived higher risk associated with HMO properties. However, the potential for higher rental yields can make HMOs an attractive investment despite these challenges.
HMOs tend to generate higher yields as rent is collected from multiple tenants, whilst standard Buy to Let Mortgages typically lower income as rent is collected from a single household.
HMOs require more intensive management due to multiple tenants and shared facilities, whilst standard Buy to Let agreements are typically easier to manage with fewer tenants and simpler tenancy agreements.
HMOs lower the risk of total income loss as the chance of complete vacancy is low, but in standard Buy to Lets there’s a higher risk of vacancy if a single tenant vacates.
HMOs are subject to stricter regulations such as safety standards, room size requirements and council licensing requirements, but standard Buy to Let’s contain fewer regulation requirements and typically no need for licensing.
Using a broker for an HMO buy-to-let mortgage is advantageous due to their expertise in navigating complex criteria and regulations. Brokers have access to a wide range of lenders and exclusive deals, saving landlords time and increasing the chances of mortgage approval.
A property that has at least five tenants forming more than one household, where the tenants share a toilet, bathroom or kitchen facilities.
It will depend on your local council rules as to whether you will require a HMO licence.
Usually 25% of the property value as a minimum, however there can sometimes be options with a 20% deposit.
Looking to estimate how much you could borrow? Simply enter a few details about your income and our affordability calculator will give you a basic assessment of whether you could afford a mortgage.
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We offer a range of Buy to Let mortgages to new and existing landlords, including HMO and Limited Company applications.