The HMO (House in Multiple Occupation) Mortgage is a type of mortgage that has been specifically designed for properties that are rented out to multiple tenants who are not part of the same household. As a result, an HMO mortgage is often handled differently from a conventional Buy to Let Mortgage by lenders.

HMO properties typically consist of several bedrooms, with each room rented out individually. The tenants then share the communal areas such as kitchens and bathrooms.

Within the London mortgage market, there are only a few lenders which specialise in lending to landlords wishing to establish an HMO.

At Thomas Oliver, we have HMO mortgage brokers that are highly experienced and skilled in supporting landlords in their search for a new HMO mortgage.

John Pringle, HMO Mortgage Specialist in Tottenham and Edmonton, North London said:

“The HMO mortgage market can initially appear to be a highly complex process, especially when considering the additional steps that need to be taken compared to a standard mortgage. However, we encourage HMO investors to speak with our friendly and professional team to help them through their journey, no matter if they are experienced HMO landlords or new to the area.”

Here are some key features of an HMO mortgage in London that our mortgage broker team can help with.

Management Experience

The Thomas Oliver team are experienced in being able to support both experienced landlords looking to remortgage an existing property, as well as those new to the HMO market in London.

Our skilled London based HMO mortgage brokers are aware that some lenders require borrowers to have prior experience in managing rental properties. Often this is the case for HMOs, so this can be taken in to account before approving a mortgage application.

If you are new to the London HMO market, then our team are on hand to help you through the mortgage process.

HMO Mortgage Lending Criteria

We understand that lenders offering HMO mortgages usually have specific lending criteria for HMO properties. They may require the property to have a certain number of bedrooms, each with adequate facilities like a bed, storage, and space.

Additionally, lenders may have requirements regarding the property's location, condition, and potential rental income.

Our team can work with you to ensure that the property you would like to purchase will meet the range of lending criteria.

Higher Deposit Requirements for HMO Mortgages

Most experienced HMO landlords understand that HMO mortgages often require a larger deposit compared to standard residential mortgages. This is because lenders perceive HMO properties as higher risk due to multiple tenancies and potential vacant periods.

Our team can work with you to determine what each mortgage lender will require as a deposit for their HMO mortgage products. This will give you with the clarity to understand what you will need to provide financially for your new HMO mortgage.

Specialist HMO Mortgage Lenders

While some mainstream lenders offer HMO mortgages, there are also specialist lenders who focus exclusively on this type of lending.

These specialist lenders may offer more flexible terms and understand the unique challenges and opportunities associated with HMO properties.

HMO Rental Income Assessment

An important element to factor in to an HMO Mortgage application will be the level of income generated. Mortgage lenders typically assess the affordability of an HMO mortgage based on the property's potential rental income rather than the borrower's personal income.

As a result, they may require evidence of the property's rental income through tenancy agreements or rental valuations.

It will be important to research the rental market in the property’s location to get a detailed understanding of a realistic income level for the potential HMO. The London HMO rental income may vary from borough to borough, so this point will need to be carefully considered.

Additional Licensing Requirements for HMO Properties

All HMO properties in the UK are subject to licensing requirements imposed by local authorities. As a result, lenders may require evidence of compliance with these regulations before approving an HMO mortgage.

It is vital to ensure that all licensing agreements are in place before applying for your HMO mortgage.

Interest Rates for HMO Mortgages

A significant difference between standard mortgage and an HMO mortgage are the levels of Interest rates. HMO mortgages may be higher compared to standard residential mortgages due to the perceived higher risk associated with this type of property.

This is also because HMO mortgage rates are often linked to SONIA (Sterling Overnight Index Average), rather than the Bank of England base rate. This is typically more expensive as it's purely for commercial use.

However, rates can vary depending on the lender, loan-to-value ratio, and the borrower's financial profile.

Katherine Mumford, HMO Mortgage Broker in Tottenham, North London said:

“As can be seen, it will be important for HMO landlords, be they experienced or new, to seek the professional advice and support they’ll need to gain access to be most fitting HMO mortgage. We would encourage them to speak with us when looking for their next HMO property in London.”

For anyone looking to assess and review their HMO mortgage deal options, Thomas Oliver Advisers are available to help. Call 01707 872000 to speak with a professional mortgage broker to help you make the most informed decisions regarding your HMO mortgage.

---

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

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

---

Approved by The Openwork Partnership on 23/02/2024