An HMO is any property let to 3 or more tenants that form 2 or more households. These products are aimed at professional landlords and landlords who are renting out each room on a separate tenancy agreement. If you are looking for a mortgage on a multi let basis where you have sharers on a single joint tenancy then information will be found here.
We have access to every HMO lender and have a wide range of lenders for your next purchase or remortgage. Every lender has different rules on the type and size of HMO and we deal with them all.
We are advisers to a small number of lenders on the HMO sector and are regular contributors to the media on the sector.
POINTS TO CONSIDER WHEN COMPARING HMO MORTGAGES
- Income- lenders range from no minimum to £25,000;
- The more experience the more lenders are available;
- Limited products for property owners who are first time landlords;
- Type of tenants- restrictions on DSS, Asylum Seekers,Local authority etc;
- Number of beds;
- Less lenders if no communal space or kitchen equipment in rooms;
- Does it need a license;
- Does it have the correct planning;
- Bricks and mortar valuation or against the rent;
- Interest only loans- how will it be repaid;
- Term of loan-3-35 years depending on age;
- Reverting interest rate- what you will pay after the initial period expires.
Lenders will instruct their valuer to value on a vacant possession (VP) value or market value which is based on a yield basis resulting in the value being linked to a multiplier of rent.
The valuer will analyse the gross rent and make deductions for repairs and management. They then capitalise the net rent to obtain a capital value figure and compare with other residential properties and comparables in the locality.
There are four ways that valuers look at HMOs:
The property can be used on a multi let basis and any works to convert are minimal. When empty the property can be used as a single let.
The property can be used on a multi let basis but the works to convert are minimal. A buyer is likely to purchase a similar property, convert than pay a premium. It will always be valued on a bricks and mortar basis. Some lenders will lend off the total rent by room and others will based the loan on the single let rent.
There is no article 4 in the area and there is no planning in place. The building has had significant change to be used as an HMO and it cannot be used as a single let.
No Article 4 in area and no planning in place. Other units in area are sold as private dwellings. The building has been significantly altered and can no longer be sold as a private dwelling. If there is a demand for an HMO and there are comparables then lender may work off market value.
Article 4 is in place.
Up to 6 beds. Article 4 is in place so there is a barrier on new HMOs. Valuer will consider comparables and rents and will be valued on market value.
Planning in place(Sui Generis ) to be used as a large HMO.
7 beds or more. Sui Generis (class of it’s own) planning in place. Valuer will consider comparables and again based on market value.
- HMO mortgages are available on an interest only, full repayment or part interest and part repayment basis;
- Loan terms vary from 3-40 years;
- Age 25-85 (by end of mortgage);
- Available to individuals, partnerships, LLPs and limited companies;
- Minimum property valuation £75,000;
- Most lenders will work off bricks and mortar valuation;
- Some will work off the rental value;
- LTV up to 85%, but typically 75%.