| Product | Fees | Further info | |
|---|---|---|---|
|
5 yr fixed 4.89%
5 year fixed rate |
£3,999 lender arrangement fees (can be added to mortgage)
|
Subject to status and further lending criteria apply. |
|
|
2 yr fixed 4.69%
2 year fixed rate |
5% lender arrangement fees (can be added to mortgage)
|
Subject to status and further lending criteria apply. |
|
HMO
Mortgages
The popularity of Houses in Multiple Occupation (HMO) properties has increased over recent years and with it the availability of specialist HMO mortgages. However, the HMO market is a specialist one and it’s important to understand the rules and regulations before taking the plunge.
Contact UsWith potential for higher yields and monthly profits than traditional Buy to Lets, HMOs have become an appealing choice for many landlords. As independent mortgage brokers, we don’t have ties to a restricted mortgage panel, this means we have access to more lenders and enables us to access typically better mortgage rates. When securing finance for an HMO property with 6 bedrooms or more, you may find the rates are higher, contact us today to receive an up-to-date, accurate quote and discuss your HMO Lending requirements. We are experienced in all types of HMO finance, large or small, including own name or via a Limited Company, or even in a Trust.
What is an HMO mortgage?
An HMO (House in Multiple Occupation) mortgage is a specific type of mortgage designed for properties that will be rented out to multiple tenants who are not from the same household. These properties typically require more complex management and regulatory compliance than single-family rental properties.
HMO mortgages are specialised financial products aimed at landlords who wish to invest in this type of rental property, offering the potential for higher returns but also requiring more careful management and adherence to specific regulations.
Typical examples of an HMO include:
- A house with more than three tenants, each on their own separate contract
- Employee housing
- Bedsits
- Privately ran student halls of residence
- Shared housing
- Hostels
You should always fund your HMO using a specific HMO mortgage. Using another mortgage product may result in you breaking your mortgage conditions. If you are unfamiliar with HMO lending, you will want to consider working with Vincent Burch, who are specialist HMO mortgage brokers.
What is the minimum deposit required for an HMO mortgage?
The minimum deposit required for an HMO mortgage usually requires an LTV (Loan To Value) ratio of 60%, 75%, 80%, 85% or less. Meaning you need to pay at least a 15% deposit on HMO mortgages.
However, the mortgage affordability will be assessed by the lender using their ICR calculations and this could restrict higher LTV lending. Most Buy to Let mortgages are advised at 75% loan to value, as this is where the lenders start being more competitively priced and the your larger deposit, then the more likely you are to get a cheaper interest rate.
Can you get a mortgage on an HMO if you are a first time landlord?
It is possible to get a mortgage on an HMO if you are a first time landlord. These mortgages are offered through specialist lenders and are usually taken on an interest-only basis. These mortgages may be subject to a minimum HMO property value, early repayment charges or other product arrangement fees.
It is worth noting that they have a higher interest coverage rate (ICR) and often have higher interest rates than standard BTL mortgages. Also, lenders generally want experienced landlords, although some lenders may consider first-time landlords.
Demand for houses in multiple occupation (HMOs) – where each individual bedroom in a property is let with facilities shared and paid for by at least three unrelated individuals – is increasing as people look for a more social and affordable way to live.
With greater potential for higher yields and higher monthly profits than traditional buy-to-lets, HMOs have become an appealing choice for many landlords. However, these benefits come with additional responsibilities and it’s important to be aware of these before starting out.
The main advantage of an HMO compared to a standard buy-to-let is the potential for higher rental yields. Several sources of income from one property means you’ve got the opportunity to generate more rental income than if it was let to one household and you’ll be less exposed when a tenant leaves or falls behind with the rent.
However, HMOs do require more management time and costs than a standard rental property. There are many things to consider such as obtaining a license, making the property fit for purpose, maintenance, utility bills, insurance and finding multiple tenants.
Generally speaking, any property with five or more people from two or more separate households that share facilities will require a license. However, in some areas, smaller properties with fewer tenants can also require a license so it’s important to check the policy with your local authority before proceeding. A license must be obtained for every qualifying HMO property and will be valid for a maximum of 5 years.
Given an HMO has more than one household under the same roof, it follows that legal obligations to ensure the property meets and maintains the correct standards are more involved than for a standard rental.
The key to success is to do your research. There’s a lot of useful information on Government and local council websites that will help you to plan. At Vincent Burch, we can also help so why not contact us today and speak to one of our experienced HMO advisers for help in finding the best loan to suit your needs.
Please note we are not tax advisors or accountants and do not offer tax advice. You need to speak to your own tax adviser or accountant to see what the implications would be based on your circumstances.
Who is eligible for a HMO mortgage?
Some lenders prefer applicants with experience in property management or owning rental properties, similarly a good credit history and proof of stable income are essential. The property itself must also meet specific standards and regulations, including necessary licenses. Consult with Vincent Burch Mortgage Services for tailored advice and eligibility assessments.
Your income
Lenders will usually require proof that you have your own income, including tax returns and payslips, to identify that you are able to make the mortgage payments.
Your property value
The property will typically need to be appraised to determine its value and ensure that it is high enough to secure the mortgage you are applying for. This may also require an inspection to ensure that it meets the standards needed and is in good condition.
Your landlord experience
Some lenders may require you to have experience as an HMO landlord to qualify for an HMO mortgage, this may also have a minimum time period that you must meet. This is to ensure you have the experience to manage the property to keep it in occupancy and pay your mortgage payments.
Can I get an HMO mortgage if I have adverse credit?
It is possible to get an HMO mortgage if you have adverse credit, however, it depends on the severity and length of your bad credit history. The more recent and larger the credit amount, the more likely you are to pay an increased interest rate.
Seek Professional HMO Mortgage Advice For The Following:
Licensing
If you have a property with five or more tenants, from two or more separate households who share facilities, it’s likely you will require an HMO license and therefore an HMO mortgage. This must be checked with your local authority as they will make the final decision. If your HMO doesn’t require a license then you’ll need a multi-let mortgage.
Legal Obligations
The legal obligations for an HMO are more involved than a standard Buy to Let and cover areas such as the suitability of the property, maintenance requirements, gas safety checks, electrical & fire safety checks, planning and insurance.
Private Individual vs Limited Company Ownership
There will be different financial and tax implications for your HMO depending on whether you operate as a private individual or a limited company. Our partners at GetGround are offering all Vincent Burch clients and enquiries a free consultation to discuss the pros and cons – find out more here.
What are the types of HMO mortgage?
There are many different types of HMO mortgages available to suit the various uses of the property. Some of the most common available include:
- Student HMO mortgages – tailored for landlords who are renting properties specifically to student tenants
- Large HMO mortgages – due to the property size, those housing more than six tenants often require this type of mortgage
- Expat HMO mortgages – designed for those who wish to let out a HMO property in the UK whilst they continue living abroad
- Ltd Company HMO mortgages – specifically for those who wish to purchase a HMO property through a Ltd company
- HMO remortgages – for those who already own a property and wish to refinance using a different mortgage product.
As an independent HMO mortgage broker, at Vincent Burch Mortgage Services we can access the best rates and deals on HMO mortgages from a range of specialist lenders such as Lendinvest, Landbay and Aldermore. Our team of friendly, experienced advisers can guide you through the process, ensuring your application meets the necessary criteria and giving it the best chance of being accepted the first time.
Why choose Vincent Burch Mortgage Services?
- Call us for the latest HMO rates and receive our 5 star customer service
- £0, No Broker fees* typically for our Mortgage Advice
- Independently family owned firm, offering Independent Mortgage Advice
- Talk to an experienced HMO Mortgage Adviser between 8am-8pm Mon-Thursday, or 8am-5pm Fridays
Let’s get your mortgage moving with expert advice and a competitive quote, call 01603 340644 or email [email protected]
Receive an HMO Mortgage Quote
Advice that’s tailored to your own bespoke situation.
Enter your contact details and we will contact you, typically within 10 minutes (during normal business hours).
Frequently Asked Questions
Do you pay stamp duty on an HMO?
Paying stamp duty on an HMO property can be a complicated matter. You may be entitled to a multiple dwelling’s relief depending on how the property is arranged. Contact us for more information on how much stamp duty is paid on HMO properties.
Stamp duty on most HMOs is usually treated as a second residential property. However, mixed-use properties which also have HMO are usually considered as a commercial property and not a residential property which has C3 or C4 use.
Do I need a license for an HMO?
Whether you need a license for a HMO property depends on the local authority regulations in the area where the property is located. It is essential that you check the licensing requirements in your area and ensure you are compliant. Local housing authorities or councils typcially provide information on HMO licensing requirements and application processes.
What's the difference between a HMO and BTL mortgage?
Both HMO and BTL mortgages are for people wanting to purchase rental properties. HMO mortgages are specifically for houses with multiple occupancy where BTL mortgages can be used to purchase any residential property including apartments and houses where only one family resides. HMO mortgages are also viewed as higher risk investments as they often need more frequent repairs and maintenance and can be more difficult to fill, and therefore require higher deposits and borrowers need to meet stricter lending criteria.
Should you operate your HMO as a private individual or a limited company?
One of the key questions facing landlords owning a House in Multiple Occupation (HMO) is whether to operate as a private individual or as a limited company. The latter has grown in popularity over recent years, particularly since 2017 when the Government began reducing tax relief for individual property investors.
According to estate agency Hamptons, in 2020, 41,700 new landlord limited companies were formed, up 23% on the previous year*1. There are now nearly a quarter of a million such companies.
As with most things, the best approach will depend on your particular set of circumstances. So, whether you are an HMO first-time landlord or have a few years of experience behind you, it’s important to consider all the contributing factors before making an informed decision. Here, we take a look at the main areas of difference:
- Tax Rates
As a private landlord, you pay income tax on your profits, depending on your annual income, at a rate of 20% for basic rate taxpayers and up to 45% if you are a higher rate taxpayer.
Limited companies pay corporation tax on their profits – currently 19% – regardless of your personal or the company’s annual income. This rate will change in 2023, with a tapered rise up to 25% for those with profits over £250,000. The 19% rate will continue to apply to companies with profits of £50,000 or less, with marginal relief for companies with profits below £250,000.
- Tax Relief
Since 2017 the amount of tax relief a private landlord can claim has been gradually reduced. As of the 2020/21 tax year, private landlords can no longer deduct finance costs, like HMO mortgage interest payments, from the rental income. Instead, mortgage finance costs are subject to a basic rate tax reduction of 20%.
This has a direct impact on potential profits for private landlords and is one of the reasons more landlords are investigating the limited company approach where 100% mortgage interest relief can still be claimed.
- Filing Accounts
Operating as a limited company comes with more administration costs and statutory responsibilities such as completing an annual company tax return and filing accounts with Companies House. This can add costs such as accountancy fees.
Annual paperwork can be kept to a minimum and finances more informal when you manage your HMO portfolio as a private landlord.
- Interest rates on mortgages
Interest rates tend to be lower for private landlords than for a limited company, with many lenders charging higher rates and fees. Despite their popularity, HMO mortgages are still considered a niche product and expert advice from an HMO mortgage broker is essential to finding the right deal. This will ensure the profits made from rental income are maximised, therefore reducing the impact of associated costs.
- Liability
Private landlords are personally liable for any accidents caused by a fault at their property. This means that if a tenant gets injured and sued, your personal finances could be at risk.
As a limited company, as the name suggests, you have limited liability and your personal finances are more protected. In the event a tenant sues following an accident at the property, liability will be limited to the value of your financial investment in the business. You can further mitigate this risk by taking out professional indemnity and personal liability insurance.
- Access to Profits
As a private landlord, what you earn from rent is yours to use as you wish. You have full access to all of your profits for personal use at any time.
However, a limited company is a legal entity in its own right, with the assets and profits belonging to the company. This means profits have to be withdrawn as a salary and/or dividends and records need to be kept of all these transactions.
*1 Letting Agent Today, 18 Jan 2021
Can you get a limited company HMO mortgage?
Yes, there are a number of specialist HMO mortgage lenders such as Paragon, Precise and Aldermore who are happy to help you finance the purchase of a property. We will provide you with guidance and advice to get you the best HMO mortgage deal. As an independent broker, we have access to lenders offering mortgage loans for both private and limited company landlords.
Contact us today for expert advice on HMO finance.
Please note we are not tax advisors or accountants and do not offer tax advice. You need to speak to your own tax adviser or accountant to see what the implications would be based on your own personal circumstances.
