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Understanding the Costs Behind HMO Mortgage Applications
When arranging finance for a House in Multiple Occupation (HMO), understanding the full range of fees involved is key to managing your investment budget. Compared to a standard buy-to-let, HMO mortgages can come with additional costs due to the higher complexity and stricter lender criteria. Below, we break down the most common fees landlords can expect when applying for or refinancing an HMO mortgage.
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1. Arrangement Fees
Most lenders charge an arrangement or product fee, typically between 1% and 2% of the loan amount. This may be added to the loan or paid upfront. Working with a specialist broker, such as Advocate Finance, ensures your application is positioned correctly with the right lender depending on your individual needs.
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2. Valuation and Legal Costs
HMO valuations are often more detailed than standard buy-to-lets because the property’s value depends on rental income potential and local demand. Lenders appoint a valuer to inspect the property and provide a report, and the cost will vary based on size and location. Here’s a post we wrote about Commercial Valuations for Small HMOs.
Legal fees are another factor, covering conveyancing, searches and checks on the property’s compliance with HMO standards. These are paid directly to your solicitor.
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3. Licensing and Compliance Fees
All HMOs with five or more tenants forming more than one household require a mandatory HMO licence, and some councils extend this to smaller shared houses through additional licensing schemes. Licence fees are set by the local authority and can range from £500 to over £1,500 depending on the size of the property and the number of occupants.
Other compliance-related costs can include fire safety measures, electrical certification, and energy performance updates.
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4. Ongoing and Exit Fees
Some lenders include early repayment or exit fees if you refinance before the end of a fixed period. In addition, there may be ongoing costs such as management fees for letting agents or maintenance budgets required by lenders to ensure the property remains compliant and tenanted.
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Expert Guidance from Advocate Finance
At Advocate Finance, we specialise in sourcing competitive HMO mortgage solutions tailored to your property type, location, and experience level. By understanding the full fee structure upfront, landlords can plan more effectively and avoid unexpected costs during the lending process.
If you’re planning your next HMO purchase or refinance, speak to our team to explore your financing options.
Learn more: HMO Mortgages
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