An HMO is a property that is let on a room-by-room basis and therefore has different occupants who will not tend to be from the same family unit. The property makeup is specific in that most (if not all of the rooms) will have their own en-suites and there will then be ‘shared’ living areas for cooking, eating, and potentially reception rooms.
HMO licenses and local authorities
This type of property, dependent on the number of rooms, will likely require a specific HMO license granted by the local authority in which the property is located which confirms certain regulations have been met regarding the property. Therefore there are more hoops to jump through for the owner to be able to obtain this license. It is therefore recommended to understand the licensing requirements of the local authority as part of the initial research into purchasing this type of property.
Maintaining or converting into an HMO
It may be that the property you are purchasing is already set up as an HMO, and has an existing license (but this may expire with the current owner), and therefore you can purchase the property as-is and approach the local authority to discuss the licensing arrangement should you purchase it. Or, it may be that you have identified a property that can then be converted to an HMO with some internal works to add the necessary elements to convert to an HMO. Again, in this instance, it would be worth approaching the local authority to discuss the property and your plans prior to purchasing the property.
The general benefit of an HMO is that they can attract a higher rental yield in that each room is let individually and therefore the overall rent for the property can be higher than letting it as one property to a family for example.
Valuing an HMO
Due to the commercial nature of these properties, if the HMO has 7 bedrooms or more, you can potentially have the property value on a commercial basis meaning a higher value than the bricks & mortar value. You will need to get advice from a mortgage advisor to ensure this is possible as it is dependent on the property, location, occupancy, consent of use, etc.
Additional requirements for an HMO
Given that this property is not your ‘standard’ buy to let there are fewer mainstream lenders that will agree to a mortgage against the property, and the available lenders will normally add in additional requirements such as the landlord having previous experience in either letting properties out to be considered an ‘experienced’ landlord, to how many rooms they will allow the property to have, etc. so it will be important to review the available mortgage options with a specialist mortgage advisor so as not to waste time and effort in purchasing one only to then find out that you or the property are ineligible for a mortgage.
These types of property are effectively small or medium-size blocks of flats or apartments that are bought to let out completely. The purchaser purchases the entire block as one and owns the freehold to then let each of the flats/apartments separately.
Eligibility for multi-unit blocks
As with the HMO properties, it will be important to find out if you are eligible to obtain a mortgage on this type of property and also get a steer from a local broker as to what you should be looking for in the property when it comes to obtaining the mortgage i.e. location, size of flats, types of flats (studio or number of bedrooms), next to, above or part of a commercial unit, number of units in the block, prior/current landlord experience, deposit availability, etc.
Valuation and deposits
Again, with these types of property the landlord will be looking to obtain a greater rental yield given that they will purchase the freehold of the block, therefore a discount for bulk buying, some lenders automatically reduce the valuation by 5-15% to ensure it is purchased at a discount price which can then increase your deposit required.
Meeting mortgage lender requirements
The property will come with some additional questions for the purchaser, namely the maintenance of the external structure, having to set up a service charge provision, the potential to have to set up a separate management company to look after the block (dependent on the number of units/size of the block), consider the position if all the units are not let fully as most lenders would want at least 80% occupancy on completion of the purchase and demand for resale in the future.
Discussing your mortgage options
Like with the HMO, it is important to discuss in detail with an experienced mortgage broker in this field at the outset to discuss your plans, get an idea of the mortgages that may be available, consider the financials of the property/properties that you may be considering to ensure that everything fits with your expectations and to then pursue any properties once these areas have been quantified and qualified as best as possible.
It may also be the case that, dependent on the size of the block/what other investment properties that you may own in the background that a commercial mortgage broker may be the best person to speak to. We also operate a commercial mortgage broking service and will gladly advise you of the best route for your individual circumstances.
Ever since I started working, I wanted to provide people with the utmost service. This developed when I helped start my Dad’s business at the age of 16. I quickly realised there are many competitors out there, but very few can provide a service which can be relied on every time, and this is what I wanted to create with The Mortgage Branch.
Share this article
growing your future together
Speak to an advisor today to discover your options:
These guys are brilliant! Mortgage flew through, no hassle and made things very easy for me. Very knowledgable too which I appreciated as needed some advice on a few bits. Hugely grateful and would highly recommend to anyone.
The Mortgage Branch is definitely the place to go if you want highly professional, none judgmental, friendly and always available when you need to speak to someone or have any questions, even when they are on holiday!
The Mortgage Branch are an exceptionally professional and helpful team, who guided us through the application seamlessly. Our questions were met and answered at all times. We appreciated the direct guidance and experience, which, all in all means we can't recommend them highly enough to anyone applying for a mortgage.
Brilliant experience dealing with The Mortgage Branch. I’ll admit I had no idea about buying a house and all the thing involved when I first called, but they were so helpful in initially helping me understand the process, understand my initial budget, and once I had found a house and had an offer accepted they were extremely prompt, professional and friendly in progressing my Mortgage application, and subsequent insurance applications for me. All the way through the process they were very happy to answer any questions I had and continually gave me advice on anything and everything. I specifically dealt with David And James, and it was a pleasure dealing with them. Thanks, Sam.
Excellent company with truly professional standards. Communication and detail was spot on and the mortgage product they secured was fantastic. A stress free process in the hands of finance professionals. Highly recommend.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Set by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
This cookie is native to PHP applications. The cookie is used to store and identify a users' unique session ID for the purpose of managing user session on the website. The cookie is a session cookies and is deleted when all the browser windows are closed.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
The _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
A variation of the _gat cookie set by Google Analytics and Google Tag Manager to allow website owners to track visitor behaviour and measure site performance. The pattern element in the name contains the unique identity number of the account or website it relates to.
Installed by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
YouTube sets this cookie via embedded youtube-videos and registers anonymous statistical data.