what you need to know about finance and insurance

The Houses in Mutiple Occupation (HMO) market has grown massively over the past decade, so it’s no surprise there are now new laws that landlords and their properties have to comply with. That’s great news for standards in the sector and for tenants who rent rooms, but it has meant landlords’ costs have gone up which means that you need to choose your mortgage and insurance products carefully. 

Specialist HMO mortgages

All mortgage lenders have tightened their application criteria across the board but there are several additional considerations if you’re applying for an HMO mortgage. So, before you begin, you need to be aware of the following:

• How many many rooms? Most lenders will consider up to five bedrooms, but any more may require commercial finance

• Tenant type. Some lenders believe that letting to students or those on benefits is higher risk.

• Rental valuation. Lenders evaluate income in two ways, either based on rooms rent or the rental income from a ‘standard’ let.

• Mortgage rate. As the market for HMO finance is less competitive, rates tend to be higher than standard Buy to Let mortgage products.

When you apply for an HMO mortgage, the lender is likely to ask for the following information:

• Evidence of being an experienced landlord
• HMO address
• The number of lettable rooms, including room sizes, which have recently been updated. For example, rooms which are smaller than 4.64 m² can’t be used as bedrooms and remember the measure can’t include an area if the ceiling height is less than 1.5m.
• Who you intend to let to, for example, professionals, students
• Whether you are going to manage the tenancy or use an agent
• If the HMO requires a licence
• How the property will be let, for example will each room have an Assured Shorthold Tenancy agreement
• Expected rents by room and if the property was let normally. This is likely to require evidence from a surveyor.

Each lender has their own rules and as such it is essential to speak to a broker about how and who you will use to finance the property, prior to making an offer. The last thing you want to do is get most of the way down the purchase process and then find that either you can’t get a mortgage or you won’t be able to let the property as you’d planned.

If you haven’t already taken specialist mortgage advice, you can contact our partners, Embrace Financial Services, for a free initial mortgage consultation. An adviser can go through everything you need to know and make sure you get the most appropriate mortgage product for your investment.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.