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HMO Mortgages For Property Investors

HMOs - An attractive alternative for Buy-to-let investors

Wednesday 12 June, 2019

Why are Houses in Multiple Occupation (HMOs) becoming popular for buy-to-let investors?

The buy-to-let investment market has not been as popular since the introduction and phasing in of the new tax changes which will be fully implemented by April 2020. The consequence of this is that a higher rate tax payer, will have to pay more tax and can only claim back expenses at the lower rate of tax. As a result the same rental yield is no longer as profitable for buy-to-let investors, especially if you compound the tax changes with the increased stamp duty that investors have to pay. It has left many seeking alternative investment options.

HMOs are an alternative property investment for Buy-to-let investors 

For any buy-to-let investors still seeking investment in the property market there is an alternative that has become increasingly popular, which is houses in multiple occupation (HMOs). HMOs are properties that are rented out by at least 3 people who are not from the same household, but they share facilities like the bathroom and kitchen. 

Why are HMOs becoming more attractive to buy-to-let investors?

Vishal Gulrajani, Mortgage Broker in Cheshunt, Hertfordshire, said: ‘The reason for the increased popularity of HMOs is the higher rental yields they offer which is more desirable now due to the tax changes. According to Samantha Taylor of Buy Association average returns on HMOs are 6.9% compared to 5.8% for other property rental types. When you compound this with the possible capital growth that properties could offer compared to other types of investments this is becoming an interesting option for investors.’

Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, Hertfordshire, continued: ‘HMOs tend to have higher interest rates than normal buy-to-let mortgages due to the increased risk the lender is taking. However interest rates are getting more competitive with the increased demand for this type of mortgage.  Lenders like Leeds Building society are offering a competitive range exclusively for small and large HMOs. You can also mitigate the new tax increases by buying an HMO through a limited company with lenders such as Fleet Mortgages. Consequently you are not only getting a greater rental yield with HMOs but you are also negating some of the tax increases by running an investment property through a special purpose vehicle such as a limited company.’

Thomas Wheatley, Mortgage Broker in Tottenham, North London said: ‘Overall the tax increases and greater regulations imposed on the buy-to-let market are here to stay so investors and lenders have to adapt accordingly. The increased competition between lenders offering HMO mortgages adds to the options investors now have and when you compound this with the greater completion between lenders for limited company buy-to-lets this can only be seen as a good thing. However, HMOs are not for everyone and are more complex and carry more risk than traditional buy-to-lets, as well as being restricted due to licensing by some councils. As a result it is important you seek mortgage advice on buy-to-let investing. The Thomas Oliver mortgage broking team have experience of offering mortgage advice for buy-to-let investors. We have a specialised investment knowledge and have teamed up with solicitors as well as councils and lenders to make sure the process runs smoothly.’ 

In Summary

If you are looking for a buy-to-let investment Thomas Oliver recommend that you contact one of our mortgage brokers. Our mortgage advisers are qualified to give mortgage advice. They can review your individual financial circumstances and discuss your buy-to-let options, including investing in an HMO. Give our mortgage broking team a call on 01707 872000 for a free initial consultation on buy-to-let investing.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

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