HMO Finance

hmo finance property handed down.

What is HMO finance?

“House of Multiple Occupation” or HMO is a distinct category of property. It is similar to Buy-to-Let but it does come with extra considerations.

What is classed as an HMO does seem to vary by local authority, and some local authorities are implementing legislation to limit the amount of HMOs in certain areas, so the key thing is do your homework if you are buying one.

Lenders will want to know that there is a current HMO licence for the property and that it can be transferred if it is not already in your name. You should also check that there is existing planning consent for use as an HMO, this is not a given.

Depending on the size of the property there is legislation on the fire alarm system.

We work with a wide range of HMO funders and can achieve the funding you need to either refinance your existing properties or to support new purchases.

Loan structure

Lenders will look at the affordability of the loan proposed, based on both the product you are taking and also their “stressed rate” typically the stressed rate is currently 5.5% and lenders are looking for 125% cover of the interest payable.

If you have more than one property some lenders look at the wider portfolio whether it is part of their lending or not, however some lenders look at just the property they are lending on.

person looking at a property due to hmo finance.

Portfolio landlords

For portfolio landlords some lenders provide a blanket facility across all of the properties, which can be good if you are planning on borrowing against the whole pot for future purposes. Other lenders will provide a facility per property which can be useful if you are planning on selling a property because it will not disrupt the wider lending position.

Lenders vary in the length of loan they provide and you should think about this carefully because the cost of having to remortgage a few times if you take cheap 1 or 2 year deals can outweigh taking a longer loan for a slightly higher rate – it’s not just the hassle of moving funders it’s potentially the extra valuation fees, legal fees and arrangement fees that are incurred.

You should consider what will happen when your initial period or initial product expires and you revert to the lenders Standard Variable Rate (SVR) which can be substantially higher than your current deal – don’t get caught out.

Interest rates

Lenders provide fixed and variable interest rates. Variable rates are often cheaper initially but they don’t necessarily give the peace of mind a longer-term fixed rate can give. You need to decide what is right for your mindset and how long you intend to own the property for.

Most fixed rates carry penalties if you want to repay early, however many variable rate products also have these penalties too – always read the smallprint. Some products allow partial repayment i.e. you can pay up to 10% of the loan balance down each year as an “over-payment”.

Lenders will look for a first legal charge over the properties provided as security for the loan.

Typical fees will include a valuation fee, a legal fee and an arrangement fee.

Cost and Fees

Lenders will look for a first legal charge over the properties provided as security for the loan.

Typical fees will include a valuation fee, a legal fee and an arrangement fee.

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