HMO Properties
Changes to The 2004 Housing Act introduced on 6 April 2006 fundamentally changed the historic view of what constituted a HMO. Not only were many smaller properties included but the landlord had to qualify as a fit and proper person.
Many BTL lenders will not lend on HMOs so landlords looking to buy further properties will find many established routes closed that refinancing existing loans may prove difficult if the property is being refinanced for the first time since April 2006.
A House of Multiple Occupation (HMO) is now defined as
- A property in which two households, consisting of three or more persons reside or
- A property not converted to the 1991 Regulations and where less than two thirds of the units within it are owner occupied.
Many properties let to students therefore become HMOs.
A HMO Mortgage will be assessed in the same way as a BTL mortgage with rent to interest cover calculation as well as LTV limits. Sometimes the RTI cover will be less accommodating than vanilla BTL as landlords can end up with additional costs for heating, electricity and rates as the individual units within the property may not have separate meters or rates bills. It is also a principal reason why rental returns on HMOs are higher than equivalent rental properties.
HMO mortgages are often viewed more commercially by lenders and perceived as higher risk (requiring active landlord management) resulting in more cautious LTVs and higher margins.
For more information, please contact us