HMO Interest Only Mortgages

Information You Should Know

Landlords or property owners generally use HMO mortgages for properties that are considered Houses in Multiple Occupancy, or what is known as a bedsit. These properties are rented to multiple occupants who share certain facilities such as a bathroom, kitchen, and family room. Students or young business professionals most popularly rent out HMOs, which 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.

What do HMO Interest Only Mortgages Cover?

HMO interest-only mortgages cover up to 85 per cent of the property’s value or purchase price. Some lenders will require the owner to have a lucrative rental income already, while others have no minimum income. 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 several unconventional properties. Although loans on the following property types may be available, it is always best to consult 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 to or above commercial properties, leasehold properties, HMOs in which the landlord also resides and some new-build properties.

What is the Lending Criteria for HMO Interest Only Mortgages?

Several different lenders offer HMO interest-only mortgages, and most can accommodate specific circumstances. However, most lenders adopt some general lending criteria regarding 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.

Low HMO Interest Rates Also Available

Although many property 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. They can be arranged with a low, fixed rate of less than 3 per cent over two years, which can then be reduced by 1 per cent for another three years.

Mortgages For Over 65S

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Some lenders can offer 60 per cent of the Loan to Value, or LTV, of the property if it has a maximum of only five tenants—these tenants can be students or working professionals. Finally, lenders can arrange an HMO mortgage for as low as an £800 arrangement fee and an additional £199 booking fee.

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Hmo Mortgage Rates

These types of mortgages typically have slightly higher rates than conventional buy-to-let mortgages, as they are considered higher risk.

How much cash can I borrow?

You can borrow 65% of your property’s value. For example, if your house is worth £320000, you can release £208000.

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