The ABC Finance HMO Mortgage Calculator
Our easy to use HMO mortgage calculator will give you an idea of your monthly payments on both capital repayment and an interest only basis.
A House in Multiple Occupation (HMO) is seen as a more profitable investment when measured against ‘standard’ buy to let property. To enable you to work out your figures as accurately as possible, we have included a useful guide.
Interest only or Capital Repayment
Most HMO mortgage lenders offer both interest only and capital repayment with little to no difference in interest rate. With capital repayment, you pay both the interest and capital meaning the loan is gradually repaid over the mortgage term. Interest only is when you only pay the interest and no capital meaning the debt does not reduce however the monthly payments are lower. Many investors opt for interest only.
This calculator will offer you figures for both allowing you to see the difference in monthly payments between the two.
HMO Mortgage Rates
As with most mortgages, HMO mortgage rates vary from lender to lender. Factors that can affect this could be the property, loan amount or client circumstances.
A house in multiple occupation property is one with 3 or more separate tenants (e.g. not a family) who share facilities such as the kitchen and bathroom. An example of this could be a 4-bed house, the 4 bedrooms are let to individual tenants who all share the rest of the property. This would be seen as a fairly standard HMO property.
Interest rates for a standard or ‘vanilla’ HMO property tend to range from around 1.7% – 3% depending on the loan to value ratio and the client having little to no adverse credit. Further information regarding this can be found below.
A more specialist HMO property could be a larger property with more rooms such as a hotel converted into a 20 room HMO. This type of property would require a more specialist mortgage lender and as such, criteria can be stricter and rates a little higher. Typically, interest rates would range between 3% and 5.5%.
When applying to an HMO lender, a majority insist that you already own at least one property already and have little to no adverse credit. If this is not the case, there are HMO mortgage lenders available. A person with no property experience or a history of missed payments could expect to pay an interest rate of between 6% and 8%.
HMO Mortgage Lender Fees
When looking at HMO mortgages, lenders fees vary between lenders and products.
Standard HMO lenders typically have different products with different fees, in some cases, you may find that the lower the lender fee, the higher the rate. Some lenders do not charge a fee at all, however, the interest rate may counteract this saving.
Standard HMO fees tend to range from not paying a fee at all to a fee of 3% of the loan amount. To obtain a fairly average interest rate they likely lender fee you would expect to pay is around £995, this can usually be added to the loan.
Specialist HMO lenders tend to base their fee on a set percentage of the loan amount, a good guide would be 1.5% of the loan amount. Again, in most cases, the fee can be added to the loan although some lenders ask for say 0.25% of the fee to be paid when the mortgage offer has been issued.
If using an HMO mortgage broker you can usually expect to pay a broker fee. For standard HMO’s, brokers tend to charge a flat fee of between £500 and £1,500, however, some base it on a percentage of the loan amount. For more specialist HMO’s, experienced HMO mortgage brokers who have access to specialist HMO lenders tend to lean towards charging a percentage of the loan amount, usually 1%. We don’t usually charge broker fee’s on specialist HMO applications and in most cases charge £495 for Standard HMO’s.
HMO Mortgages Maximum Term
Typically, lenders who lend HMO mortgages allow terms from 5 years to 30 years depending on the age of the applicant. Lenders usually like the loan to end before the oldest applicants 85th Birthday.
Loan to Value (LTV)
The maximum loan to value ratio usually depends on the client profile such as adverse credit and lettings experience.
Standard or vanilla HMO mortgage lenders tend to cap the loan at an 80% loan to value ratio. An example of this would be the purchase of a property for £100,000, a loan of £80,000 would be permitted. In some instances 85% products are available.
Specialist HMO lenders lend up to 85% of the property value if the applicant has lettings experience, this may be a couple of standard buy to lets already owned. If you have little to no lettings experience, the loan may be capped at 75% LTV.
In general, the higher the LTV, the higher the HMO mortgage rates you can expect to pay. At ABC Finance, some of our clients prefer to keep the LTV low to save on interest whereas some prefer to maximise borrowing to allow for further investment.
What do I do next?
If you would like a more detailed quote or more information please contact one of our advisors who will be happy to help. The HMO finance calculator is a useful tool, however, there may be many factors associated when choosing the right lender and product. Upon speaking to one of our advisors you will receive a detailed quotation within 2 hours, this will take into account not only the factors above but other factors such as affordability based on the rent received.