HMO Mortgages & Funding

Shared housing is a profitable and fast-growing sector of the property investment market that maximises rental income from a single property. Investors can make more money by a dividing a property up in to self-contained rooms grouped around communal areas like kitchens and bathrooms. Developers are also capitalising on opportunities to convert disused pubs or commercial buildings in to shared housing.

A standard three-bedroom house let as a single property can return around £650 a month depending on location, while the same house let as single rooms can return more than £1,000 a month. Although cash flow is improved, shared houses demand more investment and are more management-intensive than buy-to-let homes.

In many areas, these properties (often termed houses in multiple occupation or HMOs) are subject to planning permission and licensing from the local council that enforce strict fire and tenant safety rules. Landlords often let HMOs to students. Some specialise in letting to young, single professionals.

Many mainstream banks and building societies who offer buy-to-let finance will not lend on this type of property as they consider the sector is commercial rather than an investment, even though the landlord is often utilising the same property in a different way.

Financing an HMO depends on the size and nature of the property.  A conversion or refurbishment may need development finance over the short term while the property is prepared for letting, followed by refinancing to a more standard loan when tenants are ready to move in. A property that needs little work or that is already operating as an HMO can probably go to a standard lender from the start.

Loan-to-value depends on the lender and property: around 60%-70% is achievable from many lenders. Interest rates depend on the type of loan and are generally the lender’s base rate plus 2% - 4%.

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