The number of new landlords entering the UK property recently has sky rocketed thanks to a number of contributing factors. Certainly, if you’ve been reading the papers recently, and more specifically the finance pages, you’ll have seen yourself the level of coverage given to the success of UK property recently.
Demand has been rising for some time now, however, following the pandemic the drive for younger renters to move into bigger space, or just their own space, has exploded in part thanks to the amount of time that many younger people have been forced to spend so much time indoors with family or roommates.
This has, in turn, placed an upward pressure on prices as supply struggles to keep pace with this demand. Prices across the UK have risen somewhere in the region of 8% or more just in 2020. Due to the increasing demand in rental properties this has meant that rents have also grown significantly too. Consequently, yields have then grown to their highest rates in decades.
It goes without saying that it’s a good time to be a landlord right now, however, there has been an enormous surge in popularity for HMO and HMO mortgages.
An HMO is a House in Multiple Occupation, which is where a singular property has been split into separate dwellings. An example where a 5-bedroom house has been developed and split into 5 separate rooms with a lockable door, access to a bathroom, and access to a kitchen.
In recent years more and more people are looking to invest in HMO, so we’ve put together a short guide if this is something you’ve been looking at. HMO mortgages for first time landlords can be difficult to agree with traditional lenders, however, as an experienced broker, we’re able to talk you through the process and assist you.
Can I get an HMO mortgage with no letting experience?
It’s not as easy as when you’ve got experience as a landlord, but yes, it’s certainly possible to get an HMO mortgage with little or no experience.
There are, of course, some criteria that you’ll be expected to meet as a new landlord with no experience, as this will make you a riskier investment than somebody who’s managed a HMO property before, however, HMO mortgages can be agreed for new landlords and it’s something we’re able to help with.
We’ll cover some things to consider later in the guide if you’re thinking about an HMO mortgage, however, you should understand that you’ll have less choice between lenders as a first-time landlord.
HMO Mortgage Calculator
To help give you a better idea of what to expect we’ve built a calculator to illustrate what you may pay depending on your deposit, the amount you’re looking to borrow, the interest rate charged and the length of time you’re looking to borrow the money over.
All the fields are adjustable for the HMO mortgage calculator, and you can move them and change them to see how it could affect your affordability for a first-time HMO.
Can first time buyers get an HMO mortgage?
Yes, as a first-time buyer you can get a HMO mortgage, however, you’ll be in a similar situation to first-time landlords, in that your choice of lenders may be slimmer, and the interest rate could be higher, as you’ll be considered a higher risk.
Many first-time buyers decide to put their money into property investments rather than into an owner occupier property as long term investment, and to earn a rental income.
As a general rule of thumb you can expect to need a deposit of 35%, however, with a good personal credit rating and a good income you may qualify for a Loan To Value (LTV) of 70%, but this is something that can be discussed with a broker if you require more information.
Can I get a live in landlord HMO mortgage?
Yes you can, and if you decide to live in the property with your tenants then this doesn’t change the fundamentals of an HMO mortgage in that the criteria and terms remain the same and you are applying for the same product.
Landlords can live in their properties and it is classed as an HMO if you have more than two non-family members living in the property, any less and it isn’t technically an HMO anyway.
Are HMOs a good investment?
Strictly speaking, any property is a good investment, for a number of reasons.
There isn’t any 5 year period in the past 50 years that house prices haven’t increased in the UK and, on current trends, more people than ever are going to be looking to rent property in the next few decades as those prices continue to increase and property supply struggles to keep pace.
Property has been an extremely good investment in recent years, and owning an HMO is very profitable if the rental yields are good. If you’re splitting that rental income into two, three, four or even five then the yield increases markedly and can make for a very good income.
Of course, everybody’s situations are different, and you should consider your affordability and the fact that an HMO can be a lot more work than a simple buy-to-let, but on the whole, yes, they are.
HMO mortgage rates
Rates and interest for HMO mortgages will, of course, vary between different lenders, and also according to your circumstances, your experience and your credit rating, however, we can give you a rough idea of what to expect should you be accepted for one of our lenders’ HMO mortgages.
The key features of these HMO mortgages are that you can get lending up to 75% Loan To Value (LTV), annual rates up to 3.90%, your interest is charged daily, the minimum amount is £250,000, there are no Early Repayment Charges (ERC), maximum term is 25 years, your property will be valued at the Open Market Value (OMV), and maximum loan amount is £25,000,000.
Your rate of interest will depend on your LTV. If you take out HMO mortgages at 65% LTV you’ll pay 3.59% annual rate, if you take out 70% LTV you’ll pay 3.69% and if you take out a 75% LTV loan for HMO, you’ll pay 3.90% annual rate.
Can I get an HMO mortgage on a SPV?
Yes, you can. An SPV is a Special Purpose Vehicle, which is a form of company that you can form specifically to invest into, and manage, properties.
It’s considered more tax efficient, and many of our clients consider it easier to have an SPV with the specific purpose of managing a property or properties in a portfolio.
As an SPV, you can arrange a first mortgage for an HMO, however, other criteria will come into play such as your experience, the team around you, the property itself, your personal credit rating, and perhaps what security you may be able to offer.
That being said, it’s something you can discuss in more detail with a broker who has good experience of HMOs and SPVs as well as mortgages.
What to consider for first time landlords
Earlier in this guide we’d mentioned there were some further things to consider, and here are a few things to keep in mind when considering:
- Fire safety and other standards: If you’re converting an HMO or buying an HMO, you’ll need to ensure that it complies with all safety standards, including fire safety. Things like fire doors, fire extinguishers, a fire escape, and other safety measures need to be in place, up to date and in place. If they’re not then not only can they be expensive to implement, you could be heavily fined for not having them.
- Affordability: This is really key. When you’re looking at a mortgage application, you need to ensure that you’re being honest about your affordability and your budgeting. Being unable to make your mortgage repayments can have serious repercussions.
- The property: Is it right or is it available? These are two separate things, and you need to ensure that you’re getting a property that’s right for HMO (available space, etc), that’s in a good location (Urban areas near cities or student areas, for example), and in a good state of repair.
- Workload: First time landlords may find that a buy-to-let can be harder work than they thought, but an HMO can be even harder work considering you’re taking responsibility for at least 2 tenants, and up to 10 different tenants depending on the property. The paperwork, management and maintenance can be hard work.
- Your tax implications: We’ve already discussed the benefits of an SPV, but if this your first buy-to-let or HMO, then you probably need to speak to an accountant to ensure that you’re aware of all your tax liabilities and responsibilities, as this can become complicated.
Speak to our HMO mortgage brokers
Our team of brokers are the best in the business. They’ve got the experience to help you from start to finish and advise you of everything you need to know.
They’ve got great relationships with all of our lenders on our panel, and we’ll ensure that you get the absolute best rates available to you. If you’re interested in taking on an HMO, then get in touch with us today.