What is an HMO mortgage?
A property that is let to multiple individuals and unconnected tenants, such as student lets, may be classed as a house in multiple occupations (HMO).
Some HMOs require the landlord to hold a license. The implications of this are that they would need to adhere to regulatory requirements, such as building and fire regulations.
Since the changes in October 2018 to the HMO license rules, a landlord must have a license on a property if there are five or more non-related tenants and shared facilities. Where a mandatory license is not required (e.g. a property with 4 non-related tenants), the local authority can still require a license by using additional licensing powers.
If an investor plans to let to multiple tenants, he will need to check with the local authority for that property to establish the license requirements.
It is important to understand the license requirements before sourcing a mortgage, as this can dictate the lender’s willingness to lend.
Where some lenders are happy to lend on all HMO types, some lenders will only consider HMO property that does not require a license. Other factors of criteria are also taken into account, such as the number of tenants if there are locks on the internal doors if the tenants are all named on one tenancy agreement (AST) or several agreements, and also the experience of the landlord.
Many high street BTL lenders will consider a four-bedroom HMO to students all on one tenancy agreement, but a ten[1]bedroom HMO with locks on doors and needing a license will mean a different and more specialist lender will be needed.
FAQ
HMO mortgages differ from standard buy-to-let mortgages in that they allow the letting of multiple rooms to multiple people, which normal buy-to-let mortgages don't allow.
Mandatory HMO licensing does not apply to all HMOs. It is restricted to certain larger properties. You must apply for a license if 3 or more unrelated people occupy at least two different households.
It's a serious offense for a person having control or managing a licensable HMO to do so without a license and without reasonable excuse. If you're found guilty, the court can impose an unlimited fine. You may also have to pay back any rent you received during the time the property wasn't licensed.