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What’s the difference between HMO and single let valuations and refinancing?


Houses in Multiple Occupation (HMO) are often described as house shares or professional room lets and usually create more profit than standard rental property (single lets). But how easy is it to mortgage and refinance HMOs? And what do you need to know?

HMOs are defined by the Government as a property occupied by three or more people (including children) who form more than one household. This includes buildings converted into self-contained flats which do not meet the standards of the 1991 Building Regulations.

A household may be a single person or several members of the same family, for example

  • A house occupied by a brother, sister and one other unrelated occupant would form two households
  • Three unrelated persons would form three households

Tenants choose HMOs because the rent is often cheaper - these types of properties are particularly popular with younger renters. Landlords like HMOs too, as more tenants means more rent, so the total earned by the property is often higher than that of a single let. 

Challenges of HMOs
So the money side is attractive, but bear in mind that HMOs can often mean more cost and more work for the landlord. The more bedrooms your property has, the more profitable it should be, but remember the purchase price is likely to be higher than a single let. Running costs will also be greater than that of a single let, and more tenants often means more people to look after and more maintenance requests.

As of October 2018, licensing will become mandatory on all HMOs. Licensing has been introduced to stamp out rogue landlords who rent out sub-standard properties, exploit their tenants and result in a negative impact on the local community.

You can obtain licences via the Government website. Note that the penalty for renting an HMO without a licence is up to £20,000. 

Financing an HMO
Finding a mortgage lender for a licensed HMO is not difficult, but there are a few things that differ from a single let.

Lenders can have different preferences about:

  • Bedrooms. Most lenders will cover an HMO with up to six bedrooms. Going over that number will restrict your choice of providers.
  • Tenants. Some lenders choose not to fund HMOs that have student tenants or those that receive state benefits. 
  • Valuation. This is an important one to look into. Some lenders will bear in mind the level of rent your property could generate and see it as more valuable as a result. Others might simply assess the property according to its market value as if it were a single let.

HMO mortgage rates are generally higher than single let mortgage. As with any mortgage, better rates are available if you have a good-sized deposit. Most go up to around 80 per cent loan-to-value.

Qualifying for an HMO mortgage
As with a normal buy-to-let mortgage there are criteria to meet. Experience is important - some lenders will need to know you’re an experienced landlord before they will finance your HMO. Some also prefer you to use a letting agent rather than manage it yourself. 

As usual with any kind of mortgage your credit rating is a key factor, and the lender will also be interested in whether you’re buying the mortgage personally or through your limited company.

So becoming an HMO landlord is a little more complex than you may have first thought,  but not enormously so. Hopefully this blog has given you a good indication of whether it’s a new direction that would work for you.

For more support and information about HMOs, contact our Sourcing & Development Manager, Adam Seal adamseal@progressivelets.co.uk or call 01733 293900.