HMO Mortgages

We have certainly seen a great deal more interest in HMO properties because of the attractive level of income that they can produce, and we have also seen lenders being far more active in offering mortgages for HMO properties.

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With the recent changes in the way in which investors in Buy To Let properties are currently viewed by HMRC, and in the future, investors have to look very carefully at the manner in which they purchase a property either in their own name or via a limited company (SPV) and which type of property is likely to produce a strong income stream now and in the foreseeable future.

Clients looking to purchase an investment property should certainly seek advice from an accountant or tax specialist, in order to make an informed decision on the best way forward with their proposed purchase.

We have certainly seen a great deal more interest in HMO properties because of the attractive level of income that they can produce, and we have also seen lenders being far more active in offering mortgages for HMO properties.

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In the current market we can achieve mortgages up to 80% LTV, subject to criteria and the rental stress test, which has become a little more challenging in this changing market.

We are also pleased to see that some of our lenders will consider an element of bad credit, so we will require sight of your credit file in order to see how we can help you and what terms may apply.

If you do not have access to your credit file you can access then with a one off payment of £2 by a debit card, or you can opt for a one month free trial from either

www.equifax.co.uk or www.experian.co.uk

As there are new rules that will affect clients who have, or wish to purchase an HMO, we have set out the guide lines for you which were up dated on 05/12/2018.

Please see below the link to the Government Website offering you more information regarding how HMO properties are viewed by HMRC

https://www.gov.uk/renting-out-a-property/houses-in-multiple-occupation-hmo

HMO Mortgages: An Overview

A house in multiple occupation (HMO) is a property rented out by at least three people who are not from one household, but share facilities like the bathroom and kitchen, it is sometimes called house sharing.

If you want to rent out your property as an HMO in England or Wales, you must contact your local Council to check to see if you require a licence to achieve this.

You must have a licence if you are renting out a large HMO in England or Wales. Your property is defined as a large HMO if all of the following apply:

It is rented to five or more people who form more than one household

Some, or all, of the tenants share toilet, bathroom or kitchen facilities

At least one tenant pays rent (or their employer pays it for them)

Even if the property is smaller and rented to fewer people, you may still need a licence depending on the area (check with your Local Council)

Restrictions

A licence is valid for 5 years

You must review your licence before it runs out

You need a separate licence for each HMO that you own

Conditions

You must make sure:

The house is suitable for the number of occupants (this depends on its size and the facilities)

The manager of the house, you or an agent is considered to be “fit and property” for example they have no criminal record, or breach of landlord laws or code of practice.

You must also

Send the council an up dated gas safety certificate every year

Install and maintain smoke alarms

Provide safety certificates for all appliances when requested

The Council may add other conditions to your licence, for example improving the standard of your facilities, they will advise you when you apply.

If you disagree with any of the conditions the Council sets, you can appeal to the First Tier Tribunal.

You should apply for the licence yourself, but you can use a managing agent to do this for you.

Check if your home is overcrowded by law

Find out if your home is illegally overcrowded, also known as statutory overcrowding.

Room standard

The room standard looks at the number and sex of people who have to sleep in the same room.

Any room you can sleep in counts, not just bedrooms. Living room, dining rooms and studies count as rooms you can sleep in.

Your home is overcrowded by law if:

2 people of a different sex have to sleep in the same room

they are aged 10 or over

The rule doesn’t apply to couples who share a room. Children under 10 aren’t counted.

Example

A couple with two boys and a girl all aged under 10 living in a one-bedroom flat with a living room would not count as overcrowded under the room standard.

Space standard

This method is called the space standard. There are two ways to work out if a home is overcrowded under the law using this method.

First count the number of people:

anyone aged 10 or over counts as 1 person

children aged 1 to 9 count as 0.5

children under 1 year old don’t count

Next, count the number of rooms or measure the floor space of each room.

Don’t count any room that is:

under 50 square feet or 4.6 square metres

not a bedroom or living room

Check the tables below to see if your home counts as overcrowded under the law under the space standard.

If you get different results from each table, use the lowest figure of maximum number of people allowed.

Number of rooms

Number of rooms	Maximum number of people allowed
1	2
2	3
3	5
4	7.5
5	10

Floor space of each room

Room’s floor space in square feet	Room’s floor space in square metres	Maximum number of people allowed
50 – 69	4.6 – 6.4	0.5
70 – 89	6.5 – 8.3	1
90 – 109	8.4 – 10.1	1.5
110	10.2	2

Minimum bedroom sizes for Houses in multiple occupation (HMO)

Some houses in multiple occupation (HMO) must be licensed by the council.

If your landlord applied for a HMO licence on or after 1 October 2018 or has renewed it since, bedroom sizes must be at least:

6.51 square metres for an adult

10.22 square metres for two adults

4.64 square metres for a child under 10 years old

Some councils may set higher standards for bedroom sizes.

If a room is used as bedroom and doesn’t meet the size requirement, the council may allow your landlord up to 18 months to make the room larger or move you to a different bedroom.

The council can prosecute or fine your landlord if a bedroom is smaller than standards allow.

If your home is overcrowded

If your home is overcrowded according to either the room standard or space standard, you could:

count as homeless by law
have additional priority if you apply for council housing

Find out what your options are if your home is overcrowded.

HMO Mortgage Questions and Answers

What is an HMO property?

The Government view of an HMO property is a property that is rented out by at least three people who are not from one household (what you would consider to be a family) but share facilities like a bathroom and kitchen. It is sometimes called a ‘house share’

If you want to rent out your property as an HMO (house in multiple occupation) in England or Wales, you must contact your local authority (council) to enquire whether you need a licence.

You must have a licence if you are renting out a large HMO in England or Wales. Your property is defined as a large HMO if all the following apply:

it is rented to 5 or more people who form more than 1 household
some or all tenants share toilet, bathroom or kitchen facilities
at least 1 tenant pays rent (or their employer pays it for them)

Be aware that a licence is valid for a maximum period of five years, and you will need a licence for each HMO you own and rent out.

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Relevant Products

Fixed Rate Mortgages

We can help with a range of fixed rate mortgage products with competitive rates and terms.

Tracker Rate Mortgages

If you are looking for a mortgage with a rate that follows the base rate set by the bank of England – we can help.

Capped Rate Mortgages

If you are looking for a capped rate mortgage we can help, we have access to a wide market of lenders who can help.

Bad Credit Mortgages

If you have bad or adverse credit we may be able to help you secure a mortgage – from IVAs to CCJs we can help.

Standard Variable Rate Mortgages

If you are looking for a standard variable rate mortgage with competitive rates & terms we can help.

Repayment Mortgages

We can help with repayment mortgages – you’ll make monthly repayments for an agreed period of time on capital & interest.

Can We Help?

Not all lenders offer HMO mortgages but by using the services at ‘A Mortgage 4 You’ we have access to the whole of the market. With our experience and knowledge of the market we will source the best terms to suit you and your credit profile. If it can be done, we will find a lender to do it.

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What Mortgage can I obtain to purchase or re-Mortgage my HMO Property?

An HMO Mortgage is designed specifically for HMO or Multi-Let properties because a normal Buy to Let Mortgage does not generally allow the letting to multiple tenants.

There are three main types of mortgage that you may have access to depending upon whether you are purchasing or re-mortgaging a standard HMO or Multi- let property.

1 HMO Development Loans to cover heavy construction and major building projects.

2 HMO To cover light refurbishment and updating existing building work.

3 Mortgages and re-mortgages for existing HMO and Multi-let properties.

Depending upon your future plans, this will dictate the lenders who specialise in that particular area.

You should also seek advice from your accountant or tax specialist on how you should be purchasing the property, due to the changes made by HMRC regarding how the income will be taxed in 2020 and going forward.

These changes made by HMRC would suggest that any future purchases should be made using an SPV (special purchase vehicle), however the advice of your accountant or tax adviser is critical before you make the purchase as all clients have their own income tax footprint which will decide on the best route to take.

There is also big difference in the requirements by lenders who are in the HMO market. This is where a specialist brokers experience is critical in order to obtain the most attractive terms on the application. Some lenders require you to be an experience landlord with a minimum of one or two years acting as a Buy to Let Landlord, with one or two exceptions where the lenders do not ask for any previous experience. There is, with some lenders, a minimum earned income requirement of £25,000 but this again varies between lenders.

As a guide we would be looking for the information listed below to enable us to start the research process.

The experience of a BTL Landlord
The experience of the applicant as an HMO landlord
The current occupation and income of all applicants
We would need to see a copy of the clients Experian or Equifax credit file
Full information about the proposed HMO property including the type of tenant, and if it is a licenced HMO or whether it requires a licence.
How the property is being purchased, using an SPV or in the individual’s names?
The source of the deposit monies

Clients should also be aware of the major differences between a BTL mortgage and an HMO mortgage. With an HMO Mortgage this will allow for multiple tenancies in one property, which a BTL mortgage do not generally allow in their terms and conditions of the mortgage.

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Refurbishment Mortgages for an HMO

Clients should also be aware that there are Specialist mortgage products that are designed to allow existing HMO landlords to carry out renovations or extensions, or improvements to properties that are currently let as an HMO, or that are being converted to an HMO. How we approach this would depend on if the property is currently let and whether the works would be completed within a six-month period. If the works are of a heavy refurbishment nature, we may then look at other short term finance to complete the project, with a re-mortgage onto an HMO mortgage product following completion.

Other Related Mortgages / Searches

HMO Mortgages for Limited Companies
HMO Mortgage Lenders

HMO Mortgages for First Time Landlords
Best HMO Mortgage Lenders

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THINGS THAT WILL IMPACT YOUR CREDIT

Turned down elsewhere? We can help!

A Mortgage 4 You offers a tailored service for all mortgage applicants. We’ve been helping prospective landlords and property owners with HMO Mortgages reagrdless of their situation. As an established mortgage broker – we have access to the whole mortgage marketplace to ensure you get the best deal with competitive rates.

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