How to Get the Best Rates on a UK HMO Mortgage

HMOs can be great investments, most commonly in cities with substantial student populations or areas with high property prices where professionals house share.

If you’re interested in HMO mortgages or remortgaging your current deal, you’ll naturally want to achieve the best rates possible!

Today Revolution Brokers runs through our advice to present a compelling HMO mortgage application and improve your chances of maximising profits through reducing your mortgage interest.

Understanding HMO Mortgage Lender Criteria

The first place to start is assessing the standard requirements from HMO mortgage brokers. The closer you meet the eligibility requirements or, the more information you provide to support the application, the better the likelihood of success.

While policies vary between lenders, we’ve listed here some of the typical lending priorities:

• Property value – most HMO mortgages tend to start from 75,000 or 100,000, so it’s pretty difficult to secure this type of mortgage for a lower value.
• Experience levels – if you have two or more years of landlord experience, a lender will consider the loan a safer bet. If you’re new to property investment, tailored advice from an experienced broker can help highlight appropriate providers that are willing to consider inexperienced applicants.
• Property size – HMOs should usually be up to a maximum number of storeys, and anything with four or more levels might require a commercial mortgage or another lending product.
• Bedrooms – HMO mortgages are generally available for investments with six or eight bedrooms.
• Features – there shouldn’t be more than one kitchen for a property to qualify for an HMO mortgage, and you should have a communal seating area, so there’s no doubt about the nature of the rental premise.

Other rules apply, similar to those for buy to let borrowing, so a lender will look at your age, credit history, and how much you earn.

They’ll also want to know the anticipated rental income and compare that revenue to the costs of their HMO mortgage products to ensure it is affordable and you’re not likely to fall behind with repayments.

Loan to Values on HMO Mortgages

The loan-to-value (LTV) mortgage calculator can help determine the maximum percentage of the property’s value that you can apply to borrow.

In HMO mortgage lending, this sits at about 75% or 80% if you meet every other criterion, so it’s wise not to apply until you’ve saved up a 25% deposit – or have organised refinancing of other portfolio properties to release the deposit funds.

A higher deposit and lower LTV makes an HMO mortgage much less risky for the lender, so if you’re keen to secure the lowest possible interest rates, it’s advisable to offer as large a deposit as you can. Once both the parties have agreed on the loan’s terms and conditions, you may need to contact a law firm operating nearby to sign an Independent Legal Advice certificate. You may have to complete this process within the stipulated time, and if not done within the given period, it could jeopardize the transaction.

Using HMO Mortgage Calculators to Estimate Interest Rates

HMO mortgage calculators can be useful to get an idea of:

• Which lenders are offering the most competitive rates.
• How much you might be able to borrow.
• The deposit value you’ll need to put down.
• How much the monthly payments will cost.

The caveat is that an HMO mortgage calculator is only a rough indication and won’t consider any of the multiple eligibility criteria we’ve mentioned above.

Calculators look at the property value, amount you wish to borrow, and the mortgage term to estimate the figures on an approximate basis – but the interest rate offered and the LTV available will depend on multiple other variables.

Likewise, some HMO mortgage calculators are used as an advertising tool and will only show the products from the lenders that pay to advertise.

The best way to compare like-for-like rates on HMO mortgages is to consult Revolution Brokers for independent advice about the most suitable mortgage products and the lenders most appropriate for your circumstances.

Comparing UK HMO Mortgage Rates

It’s difficult to suggest average rates because they vary considerably.

A fixed-rate five-year buy to let mortgage, for example, might start at somewhere around 2% interest against a 75% LTV, but you’d be looking at interest starting from at least 3.5% for an HMO mortgage on a comparable basis.

Lenders often provide fixed periods of two or five years, or you could opt for a variable or tracker rate HMO mortgage depending on interest rates at the time of applying.

It’s also crucial to look at other fees, besides the interest only. Often, the HMO mortgages that look like the best deal are more expensive because of:

• Set-up or arrangement fees.
• Early repayment penalties.
• Product fees.

If you’d like help to find the lowest rates on an HMO mortgage, it’s important to roll all of these factors up in your calculations. An arrangement fee of, say, 2% on a 150,000 loan would add 3,000 to the costs, so these charges can add up.

For more information about the lowest current interest rates, please contact the HMO mortgage experts at Revolution. Give us a call on 0330 304 3040 or email the team at info@revolutionbrokers.co.uk for friendly, confidential advice.