HMO mortgages are generally used by landlords or property owners for properties that are considered Houses in Multiple Occupancy, or what is known as a bedsit. These properties are rented to multiple occupants where the occupants share certain facilities such as a bathroom, kitchen, and/or family room. HMOs are most popularly rented out by students or young business professionals and can mean big profits for landlords, especially with the current United Kingdom housing market conditions. HMO mortgages are available to help property owners purchase and manage these types of properties.
HMO interest only mortgages are available to cover up to 85 percent of the property’s value or purchase price. Some lenders will require the owner to already have a lucrative rental income while others have no minimum income amount. There are also a variety of HMO types that these mortgages will cover, including Licensed HMOs with a minimum of five rented rooms and non-licensed HMO properties. Other property types include newly converted HMOs, student let flats or houses, multiple self-contained flats, bedsits and studio flats and even properties with Local Authority contracts for housing placement.
Since many lenders are willing to work with unique circumstances given that their requirements are met, HMO mortgages may also be available for a number of unconventional properties. Although loans on the following property types may be available, it is always best to consult with a professional mortgage or lender broker to find the best possible deal. Unconventional properties that may be covered include flats above existing businesses, HMOs adjacent or above commercial properties, leasehold properties, HMOs in which the landlord also resides and some new-build properties.
There are a number of different lenders in the market of providing HMO interest only mortgages and most have the ability to cater to specific circumstances. There are some general lending criteria, however, that most lenders adopt when it comes to these mortgages.
Some criteria include fixed or Bank of England rates, interest-only payments, repayment periods of between 3 and 30 years, first-time landlord and buyer applications, single and multiple tenancy agreements, no maximum number of current properties, flexible income evaluations, and mortgages with no early repayment penalties.
Although many properties owners may believe that high interest rates are associated with this type of loan, HMO interest only mortgages can be arranged with manageable interest rates and payments. HMO interest only mortgages can be arranged with a low, fixed rate of less than 3 percent over a two year period which can then be reduced by 1 percent for another three years.
Some lenders can offer 60 percent of the Loan to Value, or LTV, of the property if the property has a maximum of only 5 tenants renting – these tenants can be both students and /or working professionals. Finally, lenders can arrange an HMO mortgage for as low as an £800 arrangement fee partnered with an additional £199 booking fee.
These types of mortgages are typically slightly higher rates than conventional buy to let mortgages, as they are considered higher risk.