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Is an HMO Mortgage Different to a Regular Mortgage?

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Is an HMO Mortgage Different to a Regular Mortgage?
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There are several different types of mortgage which you can apply for in the UK. The type of mortgage that is appropriate for you varies depending on your circumstances, which often includes the type of property you are buying.

When you are purchasing a House in Multiple Occupation (HMO), you may need to get an HMO mortgage in order to rent it out to tenants. In the blog below, we’ve explained exactly what an HMO mortgage is, and whether it is different to a regular mortgage.

What is an HMO Property?

A ‘House in Multiple Occupation’ (HMO) is a property in the UK which is lived in by more than one household, due to it having shared areas. The facilities which are most commonly shared in an HMO includes:

  • Bathroom
  • Kitchen
  • Toilet

An HMO is often formed by a landlord in a larger house which was originally designed for just one family. This strategy enables landlords to receive more rent for the property, by having three or more separate tenants, rather than only having one.

What is a large HMO Property?

An HMO property is considered ‘large’ if there are five or more tenants living there, forming at least one household. A bathroom, toilet and/or kitchen needs to be shared between these residents for it to qualify as an HMO.

A large HMO building will typically be at least three storeys high. Your landlord will usually require a license for a large HMO, but this is not always the case with regular HMOs. The average cost of an HMO licence in the UK is around £600. However, this cost can vary from council to council, with some as cheap as £60 and others as costly as £1,000.

How do I get an HMO licence?

You are able to apply for an HMO licence in the UK, as long as you don’t have a criminal record, and you haven’t had any tenants take legal action against you in the past.

The fee to apply for an HMO licence is usually between £500 and £1,000, although this can vary for each local council. To get an HMO licence, you will need to show that:

  • All size requirements are met
  • Fire escape routes are clear
  • Smoke detectors are in every room
  • Emergency lighting is in place
  • You have an updated gas safety certificate
  • Many other things

While the initial list of things you need to show to get an HMO licence appears long, these are mostly tasks that you would need to complete anyway to prove that your property is safe for a tenant.

Once you get an HMO licence, it is usually valid for 5 years.

What is an HMO mortgage?

An HMO mortgage is a type of mortgage which are available specifically for HMOs. These mortgages enable you to let out the property once you purchase it. An average HMO mortgage typically requires:

  1. A larger deposit
  2. Proof of enough rental income

These two requirements are even more important for large HMOs, as the lender is taking a greater risk, and therefore is more strict on seeing proof of your ability to pay off the mortgage.

You should keep in mind that you will almost always need an HMO licence in order to get an HMO mortgage. This is particularly the case in Scotland, where all HMO landlords need a licence.

Is an HMO Mortgage different to a regular mortgage?

Yes, an HMO mortgage is different to a regular mortgage. A typical buy-to-let mortgage is only designed for households with one family as tenants – meaning that this mortgage is not satisfactory for a landlord looking to rent out an HMO to multiple households.

If you decided to take out a regular mortgage on an HMO property, you would be breaking the terms and conditions of the mortgage, and your lenders would therefore be likely to take legal action.

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