The number of properties being converted into houses in multiple occupation (HMOs) has risen steadily over recent years. As the cost of living drives a demand for good quality, affordable accommodation and cities face a shortage of housing stock, HMOs have emerged as a potential solution to the financial pressures faced by both landlords and tenants.
Although HMOs can attract higher rental yields and capital growth, this specialist buy to let market comes with more complexities for landlords to navigate. Understanding areas such as financing, licensing, regulations, costs and management will be key to operating a successful long-term HMO business.
Know your HMO
- HMO or Multi-Unit Freehold Block (MUFB) – when acquiring a large property for conversion, potential landlords face a choice between buying an HMO or MUFB. An HMO is a property let by the room with shared facilities (kitchen, bathroom, communal areas) and paid for by at least three unrelated individuals. A MUFB is one freehold property divided into multiple, independent residential units, such as a purpose-built blocks of flats. The decision on the type of property to buy may be influenced by the surrounding area. For example, a location with an established student population may suit an HMO whereas a residential area could be more attractive for a MUFB. Always speak to the local council to understand the implications and costs of your choice before investing.
Regulations and licensing
- Regulations – to ensure every HMO is fit for purpose, properties must comply with a variety of regulations relating to bedroom size, communal areas, shared kitchen and bathroom facilities as well as planning permissions and construction type. Rules may vary by location so it’s important to talk to your local council about your plans in advance of a property purchase.
- Licensing – typically, larger HMO properties with five or more people sharing facilities, from two or more separate households will need a license. Again, this may differ by area, so check the local authority’s requirements before proceeding.
HMO specialist finance
- Financing – we’d recommend taking expert, professional advice to understand any tax implications, establish the most appropriate business structure and find the best HMO mortgage finance for your circumstances.
Research and management
- Location – identify local demand and competition before investing in an HMO property to maximise returns. In addition to offering buy to let HMO mortgage advice, an independent mortgage broker can help you gain a good insight into the property landscape in your area.
- Management and maintenance – the property must be maintained to a high standard with up-to-date Gas Safety and Electrical & Fire Safety checks. Specific HMO insurance is required and professional health and safety inspections must be performed every 5 years.
Flexible HMO mortgage lenders
In response to the growth in HMOs, some lenders have broadened their criteria to make funding available to more landlords, for example:
- First time landlords - given the complexities of the sector, HMO mortgages have typically only been available to landlords with previous buy to let experience. Now, there are new products offering deals for first time landlords who already have a residential mortgage.
- Older landlords - the age of investors is becoming less of a limiting factor when securing finance. Some lenders are happy for a buy to let HMO mortgage to end well past retirement, giving potential landlords the opportunity to enter the market later in life.
Many of these buy to let HMO mortgages are offered by specialist lenders and are only available through independent mortgage brokers with access to products catering for this complex sector.
Get ahead with professional advice
At Vincent Burch Mortgage Services we have a team of experts who can help you stay ahead in this very competitive market. Our knowledge and experience of the HMO sector combined with access to lenders of niche mortgages, makes us different. By working in partnership, we can help landlords to navigate the complexities, advise on the suitability of potential properties and locations as well as manage the process of finding and securing the right HMO mortgage finance.
Call 01603 851534 or email [email protected] - we’re happy to offer advice on any aspect of becoming an HMO landlord, just ask.
Contact us today