HMO mortgages and finance for Houses in Multiple Occupation

So whether you're a first time HMO landlord, an experienced HMO landlord looking to expand your portfolio or looking for a remortgage - Rangewell can help you think through and understand the range of appropriate and affordable financing available.

Why partner with Rangewell? 

As your partner, we will work with you to:

• Help you understand the difference between a buy-to-let mortgage and an HMO (houses in multiple occupations) mortgage
• Review if you need an HMO mortgage (in some circumstances, a standard BTL mortgage may be available and more appropriate)
• Check your eligibility for an HMO mortgage (Our proprietary HMO mortgage calculator will identify the range of lenders willing to finance your property - allowing you to choose the correct LTV and interest rate combination that's right for your requirements)
• Identify the best lenders and the best finance rates for your specific circumstances
• Calculate and help you minimise the deposit you need for your HMO mortgage

How Rangewell can help

Rangewell can also help with complex cases such as:

• HMO mortgages and finance for first-time landlords
• Large HMO's - we have lenders with no upper limit on the number of bedrooms per property
• Finance for HMO's held in Limited Companies / SPV's and other complex structures 
• Student lets designated as HMO's
• Expats and foreign nationals looking for HMO finance
• Properties operating as HMO's without planning permission (and we can refer you to specialist support to help rectify historic licencing issues)
• Capital raising from your current HMO portfolio

In almost all cases, because Rangewell are specialist HMO Mortgage Brokers, our experts will be able to identify a number of lenders suitable for your requirements and be able to offer a range of fixed and floating interest rates

Choosing the right HMO mortgage broker 

Getting the right type of HMO mortgage and property can make a big difference to the levels of return you enjoy. Many experienced investors have discovered that they can increase raising the overall income earned from a property by renting rooms on an individual basis.

According to data from Mortgages for Business, you could expect the overall yield on a standard buy to let with a single household tenant to average 5.8% in the first three months of last year.

Houses in Multiple Occupation yielded an average of 10.2%.

It looks as though you might enjoy a better return on your investment by letting an HMO. But you will need a special kind of finance. Fortunately, at Rangewell, we can help you find the type of funding you need.

What is an HMO?

HMOs can provide these increased yields because they provide rent by letting individual rooms, providing multiple income streams, and higher yields overall compared with letting to a family.

Government regulation states that an HMO has at least three unrelated tenants living in a home who are sharing a toilet, bathroom or kitchen facilities. It becomes a ‘large HMO’ if it has more than five tenants and is over more than two floors.

Large HMOs automatically need a licence from the council and need to meet certain standards for fire safety. In some areas, all HMOs require a licence. You should check with your local authority.

Each bedroom will be let as a separate room and each will need a separate lock and a fire door.

Unlike a standard let, with shared occupancy and one tenancy agreement covering all the occupants, an HMO usually requires individual short-term tenancy agreements with each of the tenants.

It will also require a special kind of funding. Speak to Rangewell to find out more about HMO finance. 

What are the criteria for an HMO mortgage?

All HMO mortgage lenders tend to operate differently, so their criteria may be very different. To find the most suitable HMO mortgage, a good broker will need to know the following:

1. the experience of the borrower(s)
2. Current income level of the borrower(s)
3. Credit rating of the borrower(s)
4. Basic information about the proposed HMO property, including the number of bedrooms, tenant type, property address, and a license in place. 
5. The Borrowing Vehicle, whether a personal or individual name, a Limited Company or a limited liability partnership.
6. The source of the deposit, if a purchase is not a HMO remortgage. 

It's essential for a lender to fully understand a borrower's situation so the lender can tailor products suitable for a specific scenario to allow for a smooth and efficient process.

HMO Mortgage Lenders

Not all lenders are keen on providing mortgages for HMOs because of what they see as an increased risk.

HMO properties are traditionally seen as unlikely to attract family renters, and as often being of poor quality, offering little security for the lender. To make matters worse, the modifications required to turn a property into an HMO, including fire doors and escape routes, individual heating and meters in each room will further detract from the resale potential.

An existing Buy to let Mortgage may have clauses preventing you from turning it into an HMO.

As a result, many investors believe that a Commercial Mortgage is needed for HMO property. At Rangewell, we know the specialist lenders who can offer competitive deals for landlords looking to purchase an HMO or convert an existing property, with an HMO Mortgage. They may be more costly than a conventional Buy to let mortgage but can cover up to 75% loan-to-value.

Do I need a licence for Houses of Multiple Occupancy (HMOs)?

Yes, you need a licence for a multiple occupancy house. This is for any HMO occupied by five or more people in two or more households, where householders share facilities. This includes:

• A building
• A converted flat
• Purpose build flats

The changing image of HMOs

HMOs have often been regarded as likely to attract benefits claimants and students, rather than prime tenants. This reputation is beginning to change, as the high price of renting in city centres is encouraging many young professionals to rent a room in a shared house rather than a flat.

Many investors are now seeking to cater for this lucrative market by providing high-quality accommodation in fashionable areas.

Specialist funding for HMOs

With our help, finding a lender for both licensed and non-licensed HMOs can be straightforward, although each lender has its own approach and criteria, and costs may be a little higher than comparable buy to let arrangements,

Some will base their valuation on the price achieved if it were purchased as a single dwelling, restricting the amount that you can borrow. However, others will base their valuation on the achievable rental income or ‘investment value’ when making their lending decision.

Some may only consider you for an HMO Mortgage if you are an experienced landlord. Most will make it a condition of the mortgage offer that you are deemed ‘fit and proper to run an HMO.

Other considerations may include:

• The number of letting rooms and expected or actual rental income
• Location
• Your experience as a landlord
• Whether you’ll be managing the property yourself or using managing agents
• Types of tenants
• Loan amount
• Your credit rating
• HMO Mortgage Rates and Fees

HMO mortgages are generally more expensive than a typical buy-to-let loan and harder to secure. This makes it very important to ensure you get a reasonable rate from a lender. The amount you're paying in interest will directly affect your income. 

Using an independent mortgage broker will give you access to a broader range of lenders, including lenders who will be able to tailor a package to suit your needs completely. Your mortgage broker will also be able to help you through the application process. 

Can a limited company get an HMO mortgage?

We encourage applicants wishing to use their limited companies or SPVs. Some lenders will accept an existing trading company, and others will require an SPV (special purpose vehicle), which is a company solely designed to hold and rent properties. 

Financial solutions from Rangewell

The property market is highly competitive, and it is important to have expert help to get the kind of funding that will help you reduce your outgoings.

At Rangewell, we can use our property finance expertise to support your business – and ensure that you have the financial solutions you need. We can help source business lenders who can provide specialised HMO funding - and search their offerings to find you the lowest HMO Mortgage rates. By doing this, you get to keep as much of the rent received as possible, helping you make more profit.