HMO Mortgage First Time Landlord

Can I get an HMO as a first time landlord if I’m also a First Time Buyer?

As things stand, there are a couple of niche lenders that could help you out, but generally that’s not going to be something you’re able to do – they need the experience.

If you’re not even running your own property at the moment, the majority of lenders will kick that back and say no.

Can I get an HMO as a first-time landlord if I’m self-employed or a contractor?

You could. There’s no real difference in getting a mortgage if you’re self-employed or as a contractor versus being a PAYE employee. The main difference in the application process is that you need to document some kind of income.

For a PAYE employee, it’s very easy to give the last three months worth of payslips, whereas if you are self-employed or a contractor, it’s a case of showing your last couple of years’ tax returns.

As long as you match that particular lender’s minimum income criteria, it should be a walk in the park for you.

What if I have bad credit? Can I still get an HMO as a first time landlord?

You could, especially if you’re buying it under a limited company. HMO lending can be very niche and lenders that specialise in this area tend to be a bit more flexible with bad credit.

The rates may be a bit more expensive, but there will still be ample lenders out there – depending on how bad the credit is and how far in the past it happened.

Can I remortgage my HMO property? How does it work?

It’s very similar to a standard Buy to Let remortgage. Six months prior to the mortgage expiring, reach out to your broker. You could have a conversation about the options and if you want to raise further funds – perhaps because the property price has gone up – you could apply to do that.

Ultimately it’s the exact same process. They’d still send somebody out to value the property to assess that the rental income is enough for them to lend based on their affordability criteria.

They may check your payslips and bank statements to make sure everything else matches up. As long as that’s all okay, there’s no difference in remortgaging an HMO in comparison to a standard Buy to Let.

Can I sell my HMO property?

Of course, if you’ve got a HMO property that is generating good income, and you could document that in the long run.

I don’t know why you would sell it if it’s generating a great bit of income for yourself – but if it’s necessary, you could do that. It’s just a case of putting it on the market with an estate agent to sell the property. It may limit the options because not everybody wants to run a HMO, as it could be a bit more hands-on.

We’ve done quite a few this week, though. We’ve done two applications where people have just bought a pre-made HMO and got a mortgage.

There’s still a market for it, but you’re not going to get your generic run-of-the-mill family buying it. Otherwise, they’ve got to convert it back into a standard residential property to live in.

Is it worth buying an HMO property? What are the pros and cons?

It all comes down to the individual person. If you’re very time-poor and you want to manage it yourself and be really hands-on, having an HMO might not be the right option. There’s a higher turnover in tenants and more issues could happen.

You need to look after the property, and also make sure that the tenants are all okay because there are so many of them. It could become almost like a second job.

Some very busy people might not want to get involved in that side of things. But if you’re happy to pass it off to somebody else to manage, or you haven’t got a day-to-day full time job and have time to look after it, an HMO could generate more cash flow.

There are also a lot more rules and regulations, so work needs to go into managing the HMO at the back end. But if you’ve got a good letting agent or you’ve got more time, it could potentially generate a greater cash flow than your standard Buy to Let.

Why are HMO mortgages so expensive? What costs are involved with an HMO mortgage or HMOs?
Because it’s a bit more niche, some lenders will charge you higher interest rates than on standard Buy to Lets. They do that because it’s a little bit more risky.

The more niche an area you’re investing in, the fewer lenders there are, so they could charge you a slightly higher rate.

Fees are broadly the same as a vanilla Buy to Let, but if you’re doing it under a limited company, the product fees could be quite expensive. You might find they are up to 3%, 4% or 5% of the mortgage balance.

When you’re looking at buying high-end HMOs, the product fees attached could be very expensive. Then you’ve got your standard costs, such as stamp duty, solicitor’s costs and mortgage broker fees. Those are the same regardless of whether you’re looking at standard Buy to Let or a HMO.

How do I get an HMO mortgage as a first-time landlord?

With this being a niche area, some banks are happy to lend but it’s massively limited. It’s not an area where you could do things individually by talking to a high street bank – you would really struggle.

So it’s always worth having a conversation with a mortgage broker, especially one that’s experienced in dealing with HMO clients. We work with lenders that you won’t be able to access yourself. It will also give you a greater chance of being accepted for that HMO mortgage, because we will have more options.

What else do we need to know about HMO Buy to Let mortgages for a first time landlord?

When you’re working on these particular properties, always speak to a good mortgage broker. A good broker won’t just get you finance for the property and that’s it.

One of my colleagues was helping a client with an HMO purchase. When he actually assessed the whole deal itself, after covering council tax, letting fees, gas, electricity and broadband, it worked out that the client was no better off than running a standard Buy to Let. In fact, all it would take was one room to be empty and he would actually lose money on this property.

So it’s not just a case of finding a broker that will just get the mortgage sorted out. Try to work with somebody that will look at the whole picture. We’ll make sure that you’re not investing in something that ends up being a liability, and costing you money each month.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

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