One type of mortgage that you can take out is for a house with multiple occupations, known as an HMO finance. If you are purchasing a multi-unit rental property, like for example a block of flats, this is the type of mortgage that you will need to consider.
It is a specialist type of mortgage with its own considerations, criteria, and things to consider. However, it is often the best choice for people looking to have multiple properties available.
It’s worth noting almost immediately that this type of property is considered to be a good investment by a lender. The potential rental yield can be multiple times higher than a standard property, which can be good news for any provider. However, where the rewards are multiplied,
the risk is also multiplied at the same time.
Understanding HMO Mortgages
A mortgage for a house of multiple occupations is going to be more expensive than a typical mortgage. However, this is often offset by the fact that landlords can increase their rental yields
by a significant margin.
These types of properties are usually a block of flats in a city, or a building dedicated to student accommodation. Each of the units within the property is classed as its own dwelling, and the occupants will have to pay rent individually.
Despite how this may seem, it’s actually good for all parties involved, as the average cost of rent can be a little bit lower whilst still covering the mortgage repayments. If a rental unit has three different dwellings located within it, and the mortgage repayments are £9000 each month, Then each unit would only have to pay £3000 in rent, instead of two units paying £4500.
A lot of mortgage brokers for properties of this kind often include shared access to bathroom and kitchen facilities, especially if it is student accommodation. However, private rentals for ordinary members of the public may also have a shared common area that can be used by
everybody.
Licensing Rules
When it comes to HMO mortgages, it’s important to understand that it’s not just a case of applying for a mortgage and getting started. Any property with multiple dwellings will attract the attention of the local authority, and any property where more than five people will be staying at a given point classifies as a large property, which will require you to apply for an HMO license before you can get a mortgage.
However, it is the rules and regulations laid down by the local authority in your area which contribute partially to the varying mortgage rates. Therefore, it’s important to take a close look at what’s available in the area, because the interest rates will vary wildly, depending on what
restrictions your local authority has put on businesses in the area.
As part of your license, you will be expected to meet certain criteria before you can apply for a mortgage. This will take a look at all aspects of your life, from any past prior criminal convictions to the state of the building, all the way through to keeping up with health and safety laws.
License and costs can affect the amount your mortgage will be, and it may be more advantageous to look at securing a license for one area over another.
Are HMO Mortgages Worth It?
Obviously, there are a lot of conditions and rules associated with HMO mortgage brokers, and it is enough to make a lot of people pause. However, it’s not the worst thing in the world, and it can be very lucrative to own multiple properties all generating rental income.
It’s important to understand what the licensing costs will be in your area, and what the criteria are for getting a licensing fee, because this is often the big factor when deciding upon the terms and conditions of a mortgage.
You will simply be rejected if you don’t have the correct license, and even then, it will be judged on the same basic premise as any other type of mortgage, so it will look at your credit score, financial history, projected rental income, and other factors. However, it’s definitely worth it.