An HMO mortgage will require a large deposit. LTV ratios must be between 60% to 75% for most lenders. A minimum of 25% deposit. Lenders will consider rental income when calculating their stress tests. However, they will base their calculations on the rental income from renting the property to one household. Your mortgage should be affordable and with large margins. A mortgage broker will be able to advise you as to how much an HMO mortgage is possible for you (according to your lender).
HMO lenders may be concerned about the knock-on effects on your ability of to pay the mortgage. These higher risks are reflected in the current interest rates. They currently hover around 3%.
After gaining some experience with letting properties, you might be ready for letting out HMOs. Either you convert an existing property to an HMO (or buy a brand new one), but in either case, you will need an HMO mortgage. You will need to contact your lender again if you are already a homeowner with an ordinary mortgage to buy a property.
An HMO will not be valued by every lender based on rental income. Instead, the lender will consider the HMO to be a standard home. This could limit the amount that you can borrow, which is counterproductive to the purpose of an HMO mortgage.
HMO Valuations. Lender methods may differ in this area. Some lenders use the traditional surveyor inspection in combination with comparing it to other properties in the region. If there arenŐt any HMOs, the valuation will reflect the propertyŐs value as if it were a single house. However, this method doesnŐt account for HMOs that have multiple rental incomes. Therefore, it limits your borrowing options.
HMOs can be restricted to certain areas. HMOs can be targeted at specific tenants such students and single professionals. HMOs are often located in central areas or near major bus routes and amenities. It would be pointless to have an HMO located in a rural area in the middle-of-nowhere.
What tenants can I target through my HMO? - Low-cost / affordable Housing / Housing Benefit Tenants: Some landlords let their entire properties to local authorities to use as low cost housing. In return, they get an income stream and a discount. - Professionals: A growing number of working professionals rent their properties into their late 20s to 30s. They prefer higher-spec properties (often having more bathrooms), but are more stable and live a quieter life. -