An HMO stands for House in Multiple Occupation.
If you’re a private landlord planning to rent your property as a house share or student flat to three or more unrelated individuals, you’ll need an HMO licence (and a specialized HMO mortgage) to proceed.
This setup is similar to other buy-to-let scenarios but has additional health and safety rules and regulations.
Here’s what you need to know before your first tenants move in.
What is an HMO?
An HMO is a property rented by at least three people from different households.
- Renting to a family with three young kids? Not an HMO.
- Renting to two friends who met at university? It’s still not an HMO.
- Renting to an unmarried couple living together? Again, not an HMO.
- Renting to three or more unrelated housemates? That’s an HMO.
In an HMO, each tenant has a bedroom but shares common areas like the kitchen, bathrooms, and living spaces. Each tenant signs their contract and pays their deposit and rent separately.
There are two types of HMOs:
- Small HMO: For three or four people
- Large HMO: For five or more people
What is an HMO Mortgage?
An HMO mortgage is specifically designed to buy a property to rent as an HMO. For small HMOs, the terms are somewhat similar to regular buy-to-let mortgages, but with some key differences:
- A Larger Deposit: Depending on your lender, you’ll need between 20% and 40%, higher than a standard residential mortgage. The interest rate may also be higher.
- A Strict Stress Test: Lenders are extra cautious, ensuring you can still make payments if circumstances change, as short-term tenants are perceived as riskier.
- Enough Rental Income: You must prove that the rent covers 125% and 145% of your mortgage payment. For instance, if you owe £750 a month, your rent must be between £937.50 and £1087.50 per month.
Do I Need an HMO Licence to Get an HMO Mortgage?
Yes, often you do. Especially if:
- You’re letting in Scotland, where all HMO landlords need a licence.
- You’re letting a large HMO to five or more tenants in England or Wales.
- In Northern Ireland, you must register your HMO with the housing executive.
Remember, the licence is tied to the HMO, not you as an individual. If you have three HMOs, you need three licences.
How Do I Get an HMO Licence?
Apply through your local authority, and as long as you don’t have a criminal record or previous legal issues with tenants, you can get an HMO licence. The application fee ranges from £500 to £1000.
To maintain your HMO licence, ensure that:
- Each bedroom meets minimum size requirements.
- There are clear fire escape routes and an escape plan on display.
- Emergency lighting and hardwired smoke detectors are in place.
- Fire doors are self-closing.
- You have an up-to-date gas safety certificate.
- Electrical appliances are regularly inspected.
- The property is regularly checked for safety compliance.
- Your contact details are displayed.
Who Can Get an HMO Mortgage?
Small HMO mortgages are generally open to most UK buyers, including first-time buyers, though proving your track record as a landlord can be challenging. Since HMO mortgages are more specialized, finding a good deal can be difficult due to less competition among lenders.
That’s where The Mortgage Blog’s expertise can help. Our whole-of-market mortgage brokers compare deals from various lenders to find the best HMO mortgage for you. And we’ll guide you through every step of the process. Reach out to our experienced advisers, and we’ll give an overview of available options while delving into the best-suited solution for you. Call us on 0333 335 6595 or message us to get started!
