As the popularity of houses in multiple occupation (HMO) properties has increased so too has the availability of specialist mortgages for this type of property. In the last 10 years, the market has grown from having just a few mortgages available to hundreds now. However, the pace of change and the complexity of securing the right HMO finance can be a daunting prospect for many landlords.
Here are some of the key things you need to know:
HMOs are likely to experience a higher tenant turnover than single household occupancy properties and, for this reason, the interest rates charged by lenders on these specialist mortgages tend to be higher. Although the principles remain fairly constant with that of a standard buy-to-let mortgage, typical areas of criteria that could differ for securing HMO finance include:
In addition to these HMO mortgage rules, you’ll have to meet the lender’s usual buy-to-let lending criteria on aspects such as age, income and credit history.
Getting the right advice before taking the plunge is vital. As a specialist independent broker, our friendly team at Vincent Burch will help you to navigate the HMO mortgage minefield. With access to the latest products and advice on regulatory guidelines and lender requirements, we’ll make sure you get the best deal for your business.
The maximum percentage of the property’s value you can borrow, known as the loan-to-value or LTV, is usually 75%, although it is possible to find HMO mortgages up to 85% LTV. This means you’ll need a sizeable deposit at the outset.
As with any mortgage, you should look at the set-up fees charged by lenders as well as the interest rates to compare the total costs over the initial period of the deal e.g. 2 year fixed rate. At Vincent Burch we can provide a thorough mortgage product comparison to find the best value deal for you.
Most lenders carry out a mortgage stress test – a calculation to decide how much income you’ll need to cover the mortgage repayments - and therefore how much you can borrow. Lenders need assurance that you can afford the repayments, particularly if interest rates go up. They use two main calculations:
Other sources of income, your credit score and any additional rental properties you have and the rental income you earn from them will also be taken into account.
With so many variables, it’s important to know that everything has been considered when looking for the right loan. Our experienced team of advisers can take the hassle out of the process by managing your application, ensuring it meets the necessary criteria and giving it the best chance of being accepted by a suitable lender first time.
Call today and let us help you take the next step as an HMO landlord.