Getting finance for residential HMO investment property for safer investment

• An owner-occupier who may have 3 or more lodgers with a licence to occupy their lodging accommodation.

A new class of planning use was released in 2010 called C4 which covers all properties where 3 or more people share a dwelling. You'll need an HMO licence if the property is:

• 3 or more storeys including a basement and above shops.
• Rented to 5 or more tenants
• Some or all of the occupants share bathroom, WC and/or kitchen facilities

Arranging finance to invest in a BTL investment property arranged for a HMO defined above, could be harder than getting a mortgage on one dwelling BTL investment property. While there are lots of banks and brokers who will offer the investor a mortgage for just a property to be let as one house or one flat, rental properties that fall inside criteria of multiple letting , multiple occupation HMO investment property may be more difficult than at first it would seem. In the existing UK BTL mortgage market you'll probably find just a maximum of 4 lenders who offer mortgage finance on HMO's.

From an investment perspective you are able to assert that a residence rented to multiple tenants would offer better rental security, on the grounds that the rental revenue is not reliant upon one household's income. The rent income to the property can be derived from 4 or 5 rents from your individual tenants.


Should one tenant lose his employment, or out of the blue move out or a few other circumstances leading ultimately to a rental void, the house owner as only lost 1/4 or 1/5 with the rent for the month or time that it takes to re let that room / bedsit / flat. However the upside is the investor should ultimately benefit from greater rental yields compared to a singularly rented house or flat, and as well greater return on a initial deposit employed on the investment, when compared to the same capital used in regular BTL property.

Checking out the investment on the bankers perspective it can be seen as a riskier investment profile since the property owner may need greater hands on experience with dealing with rental property, dealing with tenants , and maintaining a larger property. There may also be additional costs involved towards landlords throughout ownership for example local authority licencing fees, additional health and safety law requiring higher maintenance and capital costs of installing of fire doors, fire retardant furnishings, security systems, fire escapes for example. This additional complexity would lessen the resale value and range of potential investors who could buy the property from the bank if the bank ever had to repossess the house or property from the existing owner and have to sell on. these risk factors will need to be priced to the lending model.

Therefore with regards to cost and pricing of HMO mortgages in the lenders the standpoint HMO investor should expect to pay a little more on rates and fees. Although you can find only a handful of HMO mortgage lenders in the UK market the mortgage pricing still remains competitive in comparison to regular BTL mortgages. Potential borrowers for HMO mortgages needs to have existing BTL property on their portfolio and some years of rental market working experience of owning and maintaining BTL property.