HMO stands quite simply for House in Multiple Occupation and is defined by the UK Government as:
A property is an HMO if it is let as a main or only home to at least three tenants, who form more than one household and who share a kitchen, bathroom or toilet.
Licensing – Impact on HMO Buy to Let Mortgages
The Housing act of 2004 brought in licensing for HMO’s. Primarily the definition for licensing was set at the same level but councils were given the flexibility to vary the exact wording which allowed for the capture of additional properties and as a result it would be wise to check with local wording before deciding how to proceed with a new investment property.
An HMO must have a licence if they are:
- of three or more storeys
- occupied by five or more persons who form more than one household
In the lending environment which followed the credit crunch buy to let lenders shied away from high risk or unusual propositions. HMO Mortgages were therefore seen as non-standard or simply more complex than a typical residential buy to let mortgage. As a result the number of lenders able and willing to consider an HMO Buy to Let Mortgage is limited. That doesn’t mean they aren’t a great proposition. As we recently reported HMO yields are very high compared to regular buy to let mortgages.
HMO Landlord Responsibilities
The requirements for HMO Landlords are basically the same as any landlord would be tasked with but as HMO Tenants are often from more vulnerable groups of society there are a number of elements set out more clearly than would normally be the case. For example HMO landlords are required to submit to local authority Housing Health and Safety Rating System assessments and carry out any work that is subsequently recommended.
Landlords are also assessed as to their Fit and Proper status to hold an HMO license. This is quite different from regular landlords who are largely unregulated in this regard. Many changes to circumstances at the property will require the immediate notification of the council. Suitable forms are made available by all councils to facilitate these amendments and usually result in an application fee.
What Types of Property Can be an HMO?
Most properties can be classified as an HMO by the council. Anything from bedsits, shared houses, houses with lodgers, hostels and accommodation for homeless people to purpose built units can be classified.
Need advice on your HMO Mortgage? Request a callback from an expert HMO Mortgage Broker now.
This video presentation will leave you fully informed about all the nuances of HMO Mortgage Lenders and their requirements. Understand what’s available on the high street and what limitations that might impose on your lending. We’ll talk you through some of the alternatives and how that can both save you money and allow you to borrow at higher loan to values than many other brokers and lenders can arrange.
Today We Will Cover
- What is an HMO?
- Why do they require an HMO Mortgage?
- Who offers HMO Mortgages
- Important Considerations
What is an HMO?
A property will be defined as a house in multiple occupation (HMO) if it is:
-a shared house that is occupied by more than one household and who share one or more amenities (i.e. w/c, wash hand basin, shower, bath, cooking facilities)
-a house divided into bed sits, occupied by people who do not form one household and who share one or more amenities
an individual flat that is occupied by more than one household and who share one or more amenities
-a building of self contained flats, that do not meet as a minimum standard the requirements of the 1991 Building Regulation, and at least one third of the flats are privately rented.
Why are HMO Mortgages Required?
It is widely recognised that many HMO residents are among the poorest and most vulnerable in society.
The HMOs that they live in can be particularly difficult to manage and can present a greater risk to occupants than houses occupied by single households. Because of the risks associated with HMOs, licensing for this sector has been introduced.
Source: Charnwood Council
Who Offers HMO Mortgages?
The Mortgage Works offers them but with as much as a 3.5% fee, just 65% LTV and significantly more rental cover than for regular buy to let. Leeds building society are an HMO Mortgage Lender but only the smallest (up to 5 room) HMO’s making it unsuitable for professional landlords.
Don’t believe anybody who tells you 70-75% is impossible on HMO’s – our specialist lending panel can advance that much.
Don’t pay a 3.5% fee just because you are investing in an HMO – better deals are available.
Only specialist commercial and buy to let brokers have direct access to some lenders – don’t talk to a residential broker about your specialist needs.