What is an HMO Mortgage?
An HMO mortgage is a specialist buy-to-let mortgage designed for a property being operated as a House in Multiple Occupation.
An HMO is generally a property occupied by people from more than one household who share facilities such as a kitchen or bathroom. In England, a property occupied by five or more people forming two or more households will often fall within mandatory licensing requirements, although local authorities can introduce additional licensing requirements. Planning and licensing are separate considerations, so the position for the specific property needs to be established.
Why do HMOs need specialist finance?
The way an HMO operates is different from a conventional single-let property. Rather than one monthly rental payment from one household, the landlord may have several tenants, multiple tenancy agreements and higher running costs. The property may also have been converted specifically for HMO use.
Lenders therefore look at more than the applicant's income and credit history. They may consider the number of bedrooms and occupants, planning use, licensing, rental income, the borrower's experience, the property's location and configuration, and how the property is valued.
The valuation can be particularly important. A property with established HMO use can potentially be valued differently from an ordinary family home, depending on its configuration, planning position, licensing and evidence in the local market.
The important point is not simply finding the cheapest headline rate. The lender needs to be comfortable with the property, its use, the rental income and the overall investment strategy.
At Eastgate, we look at the property, the investment strategy and the wider circumstances before considering which lenders are likely to be the right fit.
