What counts as an HMO
A house let to three or more people from more than one household who share a kitchen or bathroom. Five or more people needs a mandatory licence from the council, and many councils, including several in the North East, have additional licensing for smaller HMOs.
How lenders look at HMOs
- Experience. Many lenders want you to have run a buy-to-let for at least a year. Some ask for HMO experience.
- Licence and planning. Have the HMO licence, or proof you have applied, and check whether an Article 4 direction means you need planning permission.
- Valuation. The big one. Some lenders value it as a normal house (bricks and mortar). Specialist lenders may use the rent (an investment valuation), which can be much higher.
- Rental cover. Usually tested on the room rents, at the same 125% to 145% as other buy-to-let.
- Size. Mainstream lenders often cap at six bedrooms. Larger HMOs go to specialists, sometimes on commercial terms.
Is an HMO mortgage regulated?
Usually not, because it is lending for a property business. If you or a family member will live there, it may be regulated.
Test the deal first. Put the total room rent into the deal analyser and raise the costs to reflect bills and higher management fees, which are typical on HMOs.
Can a first-time landlord get an HMO mortgage?
A few lenders allow it, usually for smaller HMOs and with strong income. Most want at least a year as a landlord.
What deposit do I need for an HMO?
Usually 25%. Some specialist lenders go to 80% loan to value on smaller HMOs.