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 are also known as multi let properties. 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!
Please note: HMO’s are not to be confused with bedsits. Bedsit properties rented rooms in houses which share a bathroom with other tenants but has its own kitchen facilities
HMO mortgages for properties that do not require a licence
You will have read in the section above that there are general rules on when an multi let, HMO property requires a licence. But 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 multi let, HMO or a single family rent. This is extremely important to you and your HMO mortgage broker 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. Some lenders 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 or multi let properties can be complicated and this is why it is best to talk to an HMO mortgage broker, who is very active in this market. 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.
Click here for more information on multi let properties or contact us for a FREE assessment