HOUSE OF MULTIPLE OCCUPANCY MORTGAGES

Handpicking the right mortgage deals for busy house shares.

Houses of Multiple Occupancy (HMOs) are an area of the rental market that has seen growth in recent years. Houses in multiple occupations (HMOs) have become increasingly popular for both landlords and tenants over the past decade.

Some buy-to-let mortgages are not regulated by the Financial Conduct Authority

Commercial and Development Loans are not regulated by the Financial Conduct Authority.

Your property may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £495.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

HMOs can be a good option for landlords offering the potential for higher yields and higher monthly profits through letting properties by the room.

Unlike a traditional single assured shorthold tenancy, the landlord will often pay for all utilities such as water, gas and electricity in a large HMO (House of Multiple Occupancy). This means the tenant has a fixed monthly cost to live at the property.

Historically they tended to be for students and many were of a poor standard. We’ve now seen a huge swing to high-quality lettings, some with ensuites in every room, sky tv, even a cinema room! Affluent professionals who want the flexibility to relocate if needed and the simplicity of one monthly payment to cover all bills, including rent, heating lighting, broadband are now the main growth area.

Landlords have seen an increase in the rent that can be achieved from moving from a 3-bed house as a single let, to refurbishing this to a 5 bed House of Multiple Occupancy. We can arrange funding to convert properties, as well as buying existing (comma removed) HMOs, and have helped landlords successfully move into the HMO letting space on multiple occasions.

We’ll support you with round-the-clock service, right through to completion.

What you need to know about HMO’s

House of Multiple Occupancy mortgages potentially offer greater rewards, but do need some additional considerations above a traditional single let:

If a property houses five or more people forming two or more households, a licence is needed. Licences are usually valid for five years but, bear in mind that there can sometimes be a wait for the licence to be granted – some councils could take many months to process applications.

Extra work may be required so that the property is compliant with the Housing Act. In particular, the regulation stipulates that the minimum usable floor space is no less than 6.51 square metres (per bedroom) for single person occupancy and 10.22 square metres for double occupancy.

This could involve the landlord having to move or construct walls in order to alter room size, which in some cases will involve planning permission.

Note: It’s always worth checking the Local Authority standards for room size regulations as they can change between areas.

Landlords are subject to more regulation than if the property was let as a single unit. Extra requirements include fire alarms, fire doors and emergency lighting, and the council may add other conditions to your licence, for example improving the standard of your facilities such as additional bathrooms and cooking facilities. Additionally, landlords must comply with the housing health and safety rating system to ensure the property meets the necessary safety standards.

Landlords are also required to test the fire alarms regularly, ensure communal areas are kept clean and rubbish is kept under control.

It’s worth remembering the high levels of tenant turnover involved. A HMO property with seven rooms actually involves taking on seven separate tenants, each requiring their own contract.

The level of effort required for HMO landlords to keep a HMO property in good repair is invariably more than a single-let dwelling. But, the risk to the bottom line is lessened by the fact that revenue is spread over multiple occupants. But, with a high turnover of tenants, maintenance costs may go up and this will need to be minimised where possible.

High durability carpets, lifetime warranties on door handles, the right bathroom finishes, kitchen specification and even the choice of light bulbs are all things to consider.

We now have landlord clients who have found once they have successfully set up an HMO, look to repeat again and again, and grow their portfolio to many rooms.

For special HMO quotes, contact us

To discuss your options, call us today on 01242 696235

FAQs.

What constitutes a House of Multiple Occupancy

HMO stands for ‘House in Multiple Occupation’.

Most HMOs are houses or flats shared by several different tenants, who all rent their rooms and the property’s communal space on an individual basis.

Essentially, an HMO is any property housing three or more tenants who make up more than one household (i.e. not related) and share toilet and kitchen facilities.

How much is a House of Multiple Occupancy licence

HMO licensing fees are the charges that landlords have to pay to the local council to rent out their property as a house in multiple occupation (HMO). HMO licensing fees vary depending on the council and the size of the property. Here are some examples of HMO licensing fees from different councils in the UK:

What is a HMO landlord?

A HMO landlord is someone who owns a HMO (House of Multiple Occupancy) property, which is a property specifically tailored to letting individual rooms to unrelated individuals. There need to be 3 or more lettable rooms that are let to unrelated tenants for the property to be considered a HMO.

Can a landlord be a tenant in a HMO?

There are no stipulations to the landlord of a HMO living in the property if the property is unencumbered (mortgage free).

If a mortgage is arranged on the property, or needs to be arranged, the lender will not like that the landlord is living in the property as this could potentially create issues for the lender further down the line should the lender move to repossess the property. It also creates ambiguity in whether the mortgage would then become regulated vs. unregulated (as most Buy to Let/HMO mortgages are) meaning that practically every lender offering HMO mortgages would not be willing to lend on the property and therefore making it practically un-mortgageable.

What are the benefits of owning a house in multiple occupancy?

Owning a house in multiple occupancy can provide several benefits, such as higher rental income as you can charge rent for each individual room, diversification of risk as vacancies in one room won’t affect the entire property’s income, and potential for increased property value due to higher rental yields.

When you put down roots, so do we.

Working with our long-standing charity partner, Gloucestershire Wildlife Trust, we pledge to plant a tree in your name when your mortgage completes.