Is a HMO Mortgage Different to a Standard Buy to Let Mortgage?

As a property investor or landlord, you have a lot of decisions to make. One of the most important is how to finance your property purchases. Two popular options are HMO mortgages and standard buy to let mortgages. Both have their advantages and disadvantages, so it’s important to understand the differences between them. In this article, we’ll explore the key distinctions between these two types of mortgages.

What is a HMO Mortgage?

A HMO (House in Multiple Occupation) mortgage is a type of mortgage designed specifically for properties that will be let to multiple tenants who are not part of the same household. These properties typically have shared communal spaces such as kitchens and bathrooms. HMO mortgages are often required for properties that have five or more tenants, although some lenders may require a HMO mortgage for properties with fewer tenants.

How is a HMO Mortgage Different from a Standard Buy to Let Mortgage?

There are several key differences between HMO mortgages and standard buy to let mortgages. These include:

1. Eligibility: HMO mortgages are only available for properties that meet specific criteria, such as having a certain number of rooms or tenants. Standard buy to let mortgages can be used to finance a wider range of properties.
2. Interest rates: HMO mortgages typically have higher interest rates than standard buy to let mortgages. This is because HMO properties are seen as a higher risk due to the increased wear and tear caused by multiple tenants.
3. Deposit requirements: HMO mortgages usually require a larger deposit than standard buy to let mortgages. This is because lenders perceive HMO properties as higher risk.
4. Licensing requirements: HMO properties are subject to specific licensing requirements, which can vary depending on the location of the property. Lenders may require proof of compliance with these requirements before approving a HMO mortgage.

What is a Standard Buy to Let Mortgage?

A standard buy to let mortgage is a type of mortgage designed for properties that will be let to a single tenant or family. These properties do not have shared communal spaces, and are typically let on an individual room basis. Standard buy to let mortgages can be used to finance a wide range of properties, including flats, houses, and commercial properties.

How is a Standard Buy to Let Mortgage Different from a HMO Mortgage?

There are several key differences between standard buy to let mortgages and HMO mortgages. These include:

1. Eligibility: Standard buy to let mortgages can be used to finance a wider range of properties than HMO mortgages.
2. Interest rates: Standard buy to let mortgages typically have lower interest rates than HMO mortgages, as these properties are seen as lower risk.
3. Deposit requirements: Standard buy to let mortgages usually require a smaller deposit than HMO mortgages.
4. Licensing requirements: Standard buy to let properties are not subject to the same licensing requirements as HMO properties.

FAQs

Here are some common questions about HMO mortgages and standard buy to let mortgages:

1. Do I need a HMO mortgage if I’m letting a property to two or three tenants?

It depends on the lender. Some lenders require a HMO mortgage for properties with as few as two or three tenants, while others may only require a HMO mortgage for properties with five or more tenants. It’s best to check with your lender to find out their specific requirements.

2. Can I convert a standard buy to let property into a HMO?

Not immediately, there is a process of securing a licence from the council to operate a multi-let property and then if you are having 6 or more rooms, then you may also need planning consent, which changes the class of property from standard residential to suis-generis.

Which Mortgage is Right for Me?

Deciding whether to go for a HMO mortgage or a standard buy to let mortgage depends on several factors, such as the type of property you’re investing in and the number of tenants you plan to let to. Here are a few things to consider:

1. Property type: If you’re investing in a property with communal spaces and multiple tenants, such as a student house or a house share, a HMO mortgage is likely to be the best option. On the other hand, if you’re investing in a property with individual tenants or a single family, a standard buy to let mortgage is likely to be more appropriate.
2. Number of tenants: If you’re planning to let to five or more tenants, a HMO mortgage is usually required. However, if you’re only letting to one or two tenants, a standard buy to let mortgage is likely to be more cost-effective.
3. Licensing requirements: HMO properties are subject to specific licensing requirements, which can vary depending on the location of the property. Before applying for a HMO mortgage, make sure you understand the licensing requirements in your area.
4. Interest rates: HMO mortgages typically have higher interest rates than standard buy to let mortgages. Make sure you can afford the higher repayments before applying for a HMO mortgage.

In conclusion, the decision to go for a HMO mortgage or a standard buy to let mortgage depends on several factors, such as the type of property you’re investing in, the number of tenants, and the licensing requirements in your area. If you’re still unsure which option is right for you, it’s best to speak to a mortgage broker or financial advisor who can help you weigh up the pros and cons of each option. Commercial Mortgages Broker are specialist in financing HMO’s and we would be delighted to provide with free impartial ideas and advice. Get in touch with our team today!