Which type of HMO is yours?

Houses in multiple occupation (HMO’s) fall into two distinct segments from the perspective of a mortgage lender:

• HMO properties that require an HMO licence granted by the local council. Generally speaking this relates to properties that are let to 5 or more tenants and they form 2 or more households over 3 or more storeys and they share a bathroom, kitchen and toilet. Visit our dedicated page on the mortgages available on these properties.
• HMO properties that DO NOT require an HMO licence. These properties are generally let to 3 or more tenants and they form 2 or more households and share a bathroom, kitchen and toilet. This page is dedicated to these properties and the mortgages available.

You will see that in the definitions above that the main criteria are the number of tenants and the number of floors in the property. It is important to know that although the above definitions are correct that each local council has the authority to change them. We have come across a council that requires HMO  licenses for properties with as few a 3 tenants and only 2 floors!

HMO mortgages for properties that do not require a licence

You will have read in the section above that although there are general rules on when a HMO property requires a licence or not, the local council can change this and implement their own requirements. Lenders therefore cannot keep track on which councils have moved away from the general definition of when a licence is required.  The lender will therefore require confirmation in writing or email from the council when the property does not require an HMO licence.

For HMO’s properties that do not require a licence the next important factor in selecting a lender is:

• Will the lender  value the property based on the market rent as a HMO or a single family rent. This is extremely important to you because lenders assess this differently and the amount you can borrow is dependent on the market rent.
• The number of tenants. Some lenders limit the number to 4 and some have no limit.
• Does each tenant have their own tenancy agreement or have they signed one tenancy agreement.
• Do the rooms have locks on the doors. This will be reported to the lender by the valuer when they visit.

You will see that mortgages for HMO properties can be complicated and this is why it is best to talk to an expert who is very active in this market. Once we can understand the type of property and the types of tenacies, then we can select the best solution that fits your requirements.

Over the years we have dealt with many customers who have come to us from other brokers because these brokers do not understand the lenders requirements for HMO properties. The customer has wasted hundreds of pounds on valuation reports and time, only for the mortgages to not proceed because the lender selected will not lend on the type of HMO property.

It is a complicated sector that is changing all the time and if you wish to avoid wasting time and money, then please call us for a free assessment

We provide  a FREE assessment on all our services. Contact us for more information.