HMO investment properties are becoming more popular as the demand for shared rental accommodation is rising.
HMO Definition
“A property rented out by at least 3 people who are not from 1 “household” (e.g. a family) but share facilities like the bathroom and kitchen. It’s sometimes called a “house share”.
The government defines a household as either a single person or members of the same family who live together, for example:
- Couples who are married or living together,
- Step-parents and step-children,
- Relatives or half-relatives (siblings, aunts, uncles, grandparents).
What is a HMO Mortgage
HMO mortgages are a type of mortgage specifically designed for HMO or multi-let properties. It allows for the letting of the property under multiple tenancies under the terms and conditions of the HMO mortgage.
Normal BTL mortgages do not allow for the letting of a property under multiple tenancies under their mortgage terms and conditions. Normal BTL mortgages do not allow for the letting of a property under multiple tenancies under their mortgage terms and conditions.
Subsequent to this, the letting of any property as a multi-let or HMO, but using a normal BTL mortgage will likely breach the terms and conditions of a normal BTL lender.
Types of HMO mortgages
Mortgage Types – depending on the stage at which the HMO property is at will dictate the type of HMO lending sought.
- HMO Development Loans: for major build and heavy construction projects.
- HMO Refurbishment Mortgages: for light to heavy refurb projects.
- HMO Mortgages & ReMortgages: for existing HMOs and multi-let properties.
Borrower Types – depending on the type of borrower that is seeking HMO funding will dictate the lender that is approached.
Normal BTL mortgages do not allow for the letting of a property under multiple tenancies under their mortgage terms and conditions.
Subsequent to this, the letting of any property as a multi-let or HMO, but using a normal BTL mortgage will likely breach the terms and conditions of a normal BTL lender.
Note: Sometimes HMOs need an HMO licence and/or HMO planning permission.
FAQs
What constitutes a household for HMO?
A house in multiple occupation ( HMO ) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. … it is rented to 5 or more people who form more than 1 household.
Do I need a different mortgage for HMO?
You could convert an existing property to an HMO or buy a new one – but either way, you will need a specialist HMO mortgage. … You will also need a sizeable deposit for an HMO mortgage. Most lenders require LTV ratios of 60% to 75% or less (i.e. at least 25% deposit).
How much can I borrow HMO?
The maximum percentage of the property’s value you can borrow (known as the loan-to-value or LTV) is usually 75%, although it is possible to
find HMO mortgages up to 80% LTV.
Can a flat be a HMO?
Is a block of flats a HMO? A purpose built block of flats is not a HMO. However, an individual flat within it might be if it is let to tenants who share amenities (at least one of whom is unrelated).
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