HMO’s, despite a lot of universities having to offer a lot more online lectures and less in-person seminars for a period of time have remained really popular for investors. (So we have seen) Obviously there have been some criteria tweaks from Lenders throughout the pandemic but we haven’t seen a natural downturn in HMO mortgage applications like some expected, actually we are seeing more HMO applications being made through us than any other year. To help when looking into mortgaging your HMO, as a simple guide, see below some key information.
• Majority of Lenders will want you to have landlord experience, albeit some exceptions.
• You can take the mortgage out in a Personal or limited company name
• Location of the HMO is key to establishing demand for rental
• The number of lettable rooms will change the availability of lending, over 7 there are only a handful of buy-to-let lenders with the rest falling into the commercial space
• Up to 5 bedrooms will usually achieve just a bricks and mortar valuation• 6 bedrooms will have a 50/50 chance with the right lender getting a commercial/investment valuation subject to placement with the right lender.
• 7 bedrooms and above will likely achieve a commercial/investment valuation as long as one of the lenders that allow this type of survey is chosen.
• Management type (landlord or letting agency) will be looked at by commercial lenders and the valuers.
• Does the HMO have or need a license? Some lenders will want this in place prior to the mortgage, others will only want the application submitted.
• Does each room have its own AST agreement or is it one AST for all tenants within the house?
• Rental income should mostly be ok for the lender rent calculation because of the number of rooms however if you are stress testing at 145% of your loan at 5.5%, you won’t go far wrong
• Types of tenants (students, professionals, housing association), professionals are usually better received by the lenders followed by students and then housing associations, etc.
With most of these things, there is likely always be an option but depends on what pricing/fees is acceptable to you. The more bespoke your property or situation is the less options you are likely to have. In addition to the above, lenders will also make standard mortgage assessments. This will include assessments on your affordability, the amount you wish to borrow, and your credit score. There is additional risk for the lender, as repossessed HMO properties are more problematic.
If you are interested in a HMO mortgage. Give us a call on 01925 711 558.
