HMO Mortgages Explained

If you’re thinking about getting an HMO mortgage, you’re in the right place! 

In this article we explore:

• What an HMO mortgage is
• How HMO mortgages work
• How much you can borrow
• And more…

If you have a question about HMO mortgages that we haven’t answered below, speak to one of our specialist HMO mortgage advisers to get the answers you’re looking for.

What is an HMO mortgage?

An HMO mortgage is a type of specialist mortgage specifically for Houses in Multiple Occupation (HMO). A House is Multiple Occupation is where one property is let to multiple tenants (at least three people) who are not part of the same household. For example, a property that is let to students whereby each student has their own bedroom but they share communal spaces such as the bathroom, kitchen and living room. Or, similarly, a house share where three or more working individuals live together. The HMO mortgage is taken out by the property owner, not the tenants.  

Can you get a mortgage for an HMO?

Yes, it’s possible to secure a mortgage to finance an HMO property purchase or an HMO remortgage. Although, not every mortgage lender will finance an HMO property, only specialist mortgage lenders will lend against HMOs. Similarly, not every mortgage broker offers mortgage advice in relation to HMOs, you’ll need to find a specialist mortgage broker like Fosters Financial. Some specialist HMO mortgage lenders will only accept applications from a mortgage adviser, not the borrower, and so it’s worthwhile seeking mortgage advice to ensure you have access to the widest range of HMO mortgage rates and lenders.

How do HMO mortgages work?

HMO mortgages are usually taken out on an interest-only basis which means your monthly repayments will only cover the interest. At the end of the loan term you will need to repay the principal loan amount.

HMO mortgages are offered on fixed, variable and tracker rates. Like regular residential mortgages, HMO mortgages may be subject to product arrangement fees and early repayment charges.

How much deposit do you need for an HMO mortgage?

You’ll typically need a minimum deposit of 25% of the property purchase price to secure an HMO mortgage. Some lenders might allow a smaller deposit of 20%, however, it’s important to bear in mind that the smaller your deposit the bigger your monthly interest repayments will be. 

How much can I borrow?

The amount of money you can borrow through an HMO mortgage is dependent on several factors including:

• How much deposit you put down
• The property value
• Property location
• How much rent you can charge

Some HMO lenders may also consider your personal income when calculating how much you can borrow. 

To find out how much you can borrow, answer these 5 quick questions.

How much interest will I pay on an HMO mortgage?

The interest rate you will pay on an HMO mortgage is dependent on several factors including:

• What type of product you choose; fixed, variable or tracker
• The loan to value (LTV)
• The loan amount
• The loan term
• How much experience you have

To compare HMO mortgage rates and find the most suitable product for you, get started here.

Why are HMO mortgages so expensive?

HMO mortgages tend to have higher interest rates than other types of mortgages because there are fewer lenders that offer them. They’re a specialist type of finance and rates are typically higher because there is less competition between lenders.

Is an HMO worth more than a house?

Property investors and landlords can typically achieve more rental income with an HMO property compared to a buy-to-let because there are usually more tenants and each room is let individually. However, it’s important to bear in mind that HMO properties might come with higher expenses and ongoing management costs compared to buy-to-let properties. 

Can a first time landlord get an HMO mortgage?

Yes, first time landlords can secure an HMO mortgage, although you may have fewer lenders and products to choose from compared to borrowers who have experience. What’s more, first time HMO landlords might pay a higher interest rate than experienced landlords.

At Fosters Financial we help first time landlords to secure the most competitive interest rate on their HMO mortgage. Find out more here.

What is an HMO licence?

If your HMO property is occupied by five or more people you must obtain a licence from your local council. This is a legal requirement for all HMOs in England and Wales that house at least five people. Some councils require HMO landlords who let a property to three or more people to obtain a licence. You’ll need to contact your local council to find out whether you require a licence and how to obtain one.

Ready to speak to a specialist HMO mortgage broker?

If you’re ready to speak to an HMO adviser about your mortgage requirements, get in touch! You can call us on 01206 911401. We look forward to learning about your property plans and helping you to secure the most competitive HMO mortgage.