What is an HMO and how do you finance one?
HMO stands for House of Multiple Occupation.
The best explanation of an HMO is ‘A house of multiple occupation with 3 or more bedrooms shared by more than 1 family unit’.
Examples of HMO’s include:
- Shared houses
- Individual shared self-contained flats/cluster flats
- Blocks of converted flats
- Accommodation for workers/employees
HMO’s are a popular choice for landlords as the yields are higher. A typical yield on an HMO would be around 10% compared to 4 to 5% on a standard property in Bristol or as low as 2 to 3% on a standard property in London.
Do all HMO’s need a license?
There is a standard definition of what constitutes an HMO:
- Has three storeys or more (including cellars, attics, basements, mezzanine floors and loft conversions) and
- Is occupied by five or more people from two or more households and
- Has tenants who share some amenities like kitchen, bathroom or laundry
- In some cases, a maisonette in a house or above commercial premises may need a licence if similarly occupied.
But, each Council can impose additional licensing. Bath and North East Somerset Council has imposed additional Licensing as follows:
You need a licence if the property is:
- In Oldfield, Westmoreland, Widcombe (north) and areas of Bathwick, Lyncombe, Southdown and Twerton (a map and list of roads included is available below)
- And is occupied by threeor more people;
- Those people form two or more households;
- Tenants share an amenity like a kitchen, bathroom or toilet.
Why do some HMO’s need a license?
Some Houses of Multiple Occupation require a license to maintain certain standards. The Bristol City Councils’ website states that a house is 16 more times likely to have a fire when compared to a standard property.
If you wish to manage an HMO you will need to pass fit and proper tests and the property will need to have smoke alarms and annual gas checks to ensure it is compliant.
There is a fee for a license, you can find more information on your local Councils’ website.
Mortgages for HMO’s are more specialised due to the increased complexity of the property and the tenancies in place. Fox davidson are an independent broker and therefore we can secure HMO Mortgages from the whole of the market including specialist broker only lenders.
HMO Mortgages – The Terms.
- Mortgages can be held in an individual name or in the name of a limited company
- Maximum loan to value on an HMO Mortgage is 85% but more typically 75%.
- Interest Only & Capital & Interest Repayment Options
- The loan amount will be determined by rent and individual affordability. Lenders will now more commonly check on the background income individual or in the case of a Ltd company, the directors & shareholders.
HMO mortgage rates
HMO Mortgage rates will vary as the market changes and will depend on the property type, rent roll and individual circumstances so to quote would be foolish. What you can expect are slightly higher rates than standard Buy to let rates but as we are an independent mortgage broker and can go to the whole of the UK market we can ensure you get the best possible terms for your situation.
Who is eligible for an HMO mortgage?
Most HMO mortgage lenders will require that you are a home owner or already own a buy to let. Typically first time buyers will not be able to easily finance an HMO.
Most clients will need to have a UK taxable income.
You will need a deposit of at least 15% but generally 20% – 25% is required.
You do not have to be resident in the UK. We can secure HMO mortgages British Expats.
If you have found a property you wish to purchase then the next step is to call a specialist HMO mortgage broker at Fox Davidson. We have offices in Bristol, Bath & London at which we can meet clients or we can travel to your home or place of work.
The application process typically takes around 3 weeks including the underwriting, assessment of documents and the property survey. At offer stage the solicitors will be work to complete on the purchase or remortgage as quickly as possible.
At Fox Davidson your dedicated mortgage broker and dedicated administrator will oversee the whole process from application through to completion.