It can be difficult for landlords or property investors to determine what type of financing is needed for an HMO or Houses in Multiple Occupancy property. Not only is determining what is needed sometimes difficult, it can be just as hard to determine how to go about securing the funding that is required.
Many of these individuals become frustrated with the entire process, but it is important to know that a knowledgeable broker can help to steer wayward borrowers to the perfect financing solution for their HMO. For many of us, understanding the sometimes confusing details of the financing world can be tough – this is another area where a finance broker can be of great assistance to a borrower.
Information on Licensed HMOs
Licensed HMOs can sometimes be hard to define, unlike their counterpart the unlicensed HMO. Licensed HMOs are usually defined by the local authorities in the region where the property resides and generally is labeled to fit the area.
Because of this, it is impossible for there to be a set definition or benchmark of what a licensed HMO is. A general rule of thumb for these types of properties is that the building must be at least three stories high and be occupied by five or more tenants.
These properties will also require a license in order to be rented out to occupants. It is important to consult with local authorities when looking to purchase and manage licensed houses in multiple occupancy to ensure that all of the local and regional regulations, restrictions, and laws are being followed correctly.
Licensed HMO Mortgages
At this time, there is a limited market for mortgages on licensed HMO properties. Although this may be discouraging, it is important to know that even though there are fewer options out there it is still possible to find a great mortgage scheme that will meet the licensed HMOs needs.
Licensed HMOs are generally viewed as more of a commercial property than a residential property – because of this, lenders will require more details and information before approving the loan in order to make sure they are making a worthwhile investment.
It is also important to keep in mind that since this market is much smaller than other financing arenas, this type of funding is generally more expensive in terms of interest rates and the amount of information a lender will require to approve.
For licensed HMO mortgages, lenders will consider the borrower’s experience as a landlord or property investor when reviewing their application for financing. The more experience and proven track record a borrower has, the more likely it will be that they are approved for the loan with more favorable terms than other, less experienced applicants.
There are also a number of other factors that will play into the lenders overall decision about the approval of the loan. Since these factors can vary greatly from one lender to the next, it is important to consult a professional mortgage broker – mortgage brokers will know what a lender is looking for in a good applicant and can help match you with the perfect lender.
Information on Unlicensed HMOs
Unlicensed HMOs have a much more rigid definition than a licensed HMO – unlicensed houses in multiple occupancy are properties that are rented out to three or more occupants that come together to form a total of two or more households.
On these properties, tenants will share the common areas of the building including the family room, bathroom, and kitchen areas. To help further clarify this definition, it is important to know what is considered a “household” – for example, three students who are not related living on the same property would be considered three different households and would be qualified to be called an unlicensed houses in multiple occupancy. A family of five living on one property would be considered a household but would not be considered an unlicensed HMO.
Unlicensed HMO Mortgages
In order to qualify for an unlicensed HMO mortgage, the property must have 3 to 4 tenants already letting or committed to doing so. There are a number of financing options available for this kind of property, so it is important to retain the assistance of a professional broker in order to ensure the right financing is being applied for.
Depending on the lending institution being used to provide the financing, there are some additional details that will be important to getting the loan approved, such as not having locks on the building’s interior doors, having tenancy agreements with each, separate occupant and making sure all common living areas are up to standard.
Many brokers have whole of market experience and are able to match a borrower with a lender who will work with their unique situation.