Should you Consider a HMO Property?

HMO buy to let is a property let out to more than 3 individual tenants , commonly know as a house of multiple occupation. With these type of property the tenants have their own bedrooms but will share some rooms, such as the kitchen, bathroom and a communal living space.

HMO properties give a landlord the potential to make a greater return than if the let the property to a single family. than you can by letting to a family.

By charging rent per room, the reward can be far greater but its important to realize the complications involved.

How does a HMO Buy to Let Mortgage Work?

For a house of multiple occupancy you will need a specialist mortgage. A HMO mortgage often has higher rates and fees and than a standard buy to let mortgage. Lenders will also have tighter criteria for these mortgages such as some lenders will only offer a HMO mortgage to an experienced landlord.

There can also be restrictions on the maximum number of bedrooms, size of communal areas and how the tenancy agreement is set up.

It’s also important to check with a lender when considering buying a property to convert to a HMO. You will need the lenders consent to do this and you may need the council approval depending on the number of bedrooms the property will have.

The good news is that there are competitive rates available for a HMO and we have several HMO buy to let best buy tables for you to quickly check the current rates available.

Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority

How do Lenders Calculate how much you can Borrow on a HMO?

Much like a standard buy to let mortgage the lenders will apply a stress test on the rent to calculate how much you can borrow.

Lenders will take a national interest rate typically abased on the product rate plus a small factor. They will calculate the annual interest charged based on this then multiple this by either 125% or 140% depending on your tax bracket. (Its important to bare in mind that many lenders will add the gross rent to your annual income when establishing if you are a basic or higher rate tax payer)

An Example of HMO the Maximum HMO Mortgage Would be

if you’re borrow a mortgage of £200,000 and the Interest Cover Ratio is 5.5%, the annual interest you need to afford is £11,000 x either 125% or 145% depending on your tax bracket.

£200,000 X 5.5% = £11,000 interest

Basic taxpayer: rent required = £13750 pa, or £1146 pm

Higher rate taxpayer: rent required=£15950 or £1330 pm

Best HMO Buy to Mortgage Tables and Online Quotes

Our new HMO best buy tables allow you to quickly see the current rates available from the leading lenders. These rates are updated daily for the most update HMO mortgage rates online. You can also do an instant HMO BTL quote if you have a property in mind.

Do you want Expert HMO Buy to Let Mortgage Advice?

If you want advice on a HMO Buy to Let Mortgage we offer no feemortgage advice. Simply complete our mortgage inquiry form and we will contact you to discuses your mortgage requirements. We normally do not charge a fee for HMO BTL mortgage advice, however this is dependent on your circumstances. Our typical fee would be £399.

Your home may be repossessed if you do not keep up repayments on your mortgage