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What is a HMO?

A house in multiple occupation (HMO) is defined as a property that is being rented to three or more tenants that are unrelated. These tenants may share facilities such as kitchens or bathrooms.

HMO’s allow landlords to rent properties to rent their property to multiple households, rather than just one singular household.  Landlords are able to charge their tenants by room, flat, or section of the property. This can help to maximise their rental income.

What is classed as a large HMO?

The government stipulates that properties in England and Wales are designated as large HMO’s if they fulfil each of the following criteria

  • • it is rented to 5 or more people who form more than 1 household
  • • some or all tenants share toilet, bathroom or kitchen facilities
  • • at least 1 tenant pays rent (or their employer pays it for them)

If a property meets all three of these points the landlord will need a license to let it out, these are valid for five years and issued by the properties local council.

If a HMO property doesn’t meet all these points it doesn’t mean that you won’t need a HMO license. This decision is left to the properties local council.

HMO mortgage criteria

Most HMO mortgage lenders will require you to have experience in letting a property before they lend to you. Mercantile Trust is one of only a handful of lenders that could offer you a HMO mortgage if you’re a first time buyer.

Some lenders will also place a cap on the number of bedrooms your HMO property can have, typically they won’t lend on any property with more than five bedrooms. However Mercantile Trust has no limit on the number of bedrooms your property has.

HMO Mortgage Rates

HMO properties are seen as specialist by lenders, often making mortgages more complex and expensive than traditional residential or by to let mortgages.

The HMO mortgage rate you are offered will depend on many factors. These include the properties location and the types of tenants you’d be renting to. Lenders will also take into account much of the criteria they would for a residential mortgage such as the amount you wish to borrow, your deposit and your credit score.

HMO mortgage applications are assessed mainly on the potential/actual rental income of the property, i.e. how much rent can or could be charged for the property being purchased. It is essential to ensure that you can afford the mortgage as the property may be repossessed if you do not keep up with the repayments.

HMO Mortgage deposits and LTV’s

The amount of deposit you have available can have a major impact on your mortgage. The bigger your deposit, the lower the amount of credit you’ll need to borrow. This means your monthly repayments as well as your interest rate could be reduced.

Mercantile Trust can lend at a maximum of 75% of the value of the property you wish to borrow for, meaning you’re required to pay a minimum of 25% deposit. If you’d like to discuss your circumstances then feel free to give us a call and we’ll be able to help.

HMO Mortgage Lenders

Going direct to a specialist HMO mortgage lender, such as Mercantile Trust could save you money as you avoid the payment of broker fees. You’ll be assigned one of Mercantile Trust’s experienced advisors who will work alongside you for the duration of your mortgage application.

To begin your HMO mortgage application today, fill out the form above.

HMO buy to let criteria

  • Up to 75% loan to value
  • Rates from 7.99%
  • 1st and 2nd charge
  • Tenants must not be related to applicant
  • Applicants must be at least 18 years old
  • Mortgage term must end by applicant’s 80th birthday
  • Rent must cover monthly payment at 125%
  • 1% stress rate
  • 12 months mortgage or rental history required
  • Top slicing available
  • No personal income requirements
  • Mortgage term can be between 3 and 25 years
  • Most property constructions accepted
  • Individuals and limited companies accepted
  • First time landlord, first time buyers accepted
  • HMO's (Houses in Multiple Occupation) accepted
  • No maximum number of rooms in HMO’s
  • DSS tenants accepted