How Do I Achieve The Best HMO Mortgage Rates?
Our HMO mortgages comparison tool gives you a snippet of the best HMO mortgage rates on the market. When looking at HMO mortgages, there are many factors that can affect the interest rate charged by HMO mortgage lenders. This could be things like lettings experience, credit history or the loan to value (LTV) ratio.
The LTV is simply the ratio the loan amount is against the value in percentage. An example of this would be a loan of £75,000 against a property value of £100,000 is at 75% LTV.
HMO mortgage lenders tend to offer the best HMO mortgage rates when the LTV is lower at 60% or less. 85% HMO mortgages would generally have a higher interest rate than a 75% LTV mortgage due to the increased risk in the event of repossession.
Are Rates Higher Than Standard Buy To Lets?
HMO mortgage rates tend to vary depending on the type of property and number of tenants, along with a number of other factors. As a general guide, rates start at very similar levels to standard buy to let mortgages. In many cases, the products are almost identical.
Due to the number of different factors in applications and the differences between HMO mortgage lenders, it is crucial that finance costs are considered early.
What Types Of Property Will You Lend On?
Many properties used as HMO’s are houses or large buildings which have been converted into an HMO property. This may lead to the need for advice in finding the right lender for your situation. We have lenders for almost any circumstances and are able to lend on almost any property type, including:-
- Converted Hostels
- Converted B&Bs
- Blocks of flats
- Shared Houses on single or multiple ASTs
- Houses Converted into bedsits
- Student Halls & Flats
- Converted Bedsits
- Employee Housing
Can I Apply For An HMO Remortgage?
Yes, depending of course on a few factors. The new lender will look at your credit history, affordability, reason for the refinance and loan to value ratio.
You may be looking for a better interest rate, raising funds for debt consolidation or to increase your portfolio. If you are refinancing an existing debt it is crucial to check if you have any early repayment penalties (ERC’s).
Capital raising to purchase further property will not be an issue in most cases and some lenders will help fund the new purchase at the same time which can make the process simpler.
Can I Still Apply If I Have Adverse Credit?
Yes – As a whole of market broker, we have access to products which cater for people with adverse credit.
Many cases of adverse credit are minor, a historic or a one off item. We deal with lenders that take a view on minor adverse if there is a good reason for it.
Heavier adverse will restrict the choice of lender and some HMO mortgage lenders do not lend to applicants with adverse credit. There are some adverse credit HMO mortgage lenders available but the interest rate will reflect the added risk.
If you have previously suffered any adverse credit, it is advisable to disclose this to us from the outset as it will have an impact on which lender is right for you.
Is It Not Tougher To Obtain HMO Mortgages Though?
When you compare HMO to buy to let, HMO mortgages could be assumed to be harder to source. However, as they are becoming more popular, lenders are releasing more competitive products and are trying to simplify the process.
Whilst they are growing in popularity, if you compare HMO mortgages to Buy to Let, the completion rate is roughly a quarter. (i.e. for every 3 Buy to Let mortgages, one HMO finance application is processed).
HMO mortgage lenders may prefer to see experience from an applicant as a landlord, although it’s not impossible for a first time landlord to secure HMO funding.
As HMO Mortgages are more specialist, people will often choose to work with an experienced HMO Mortgage Broker. In our role as a broker, ABC Finance Limited secure our clients the best possible deal and help prepare them for the information they will be asked for.
For example, when applying for HMO mortgages, the applicant will definitely be asked about:
- The property – location, number of letting rooms
- Your experience as a landlord
- Sourcing tenants – will the tenants be sourced directly, or through an agency.
- What demographic will your tenants likely be?
- Licensing – will the property be a multi-let or licensed HMO?
- The business plan – expected rental income, covering rental voids etc.
- Personal income/expenditure/assets/liabilities.
- Your credit rating
- How you will repay/borrow – personally, or through a company?
Don’t be concerned about being asked a lot of questions when applying for an HMO mortgage. It’s simply a case of the more questions asked, the more a broker is aware of an applicant’s circumstances and needs, which should help them source the best deal.
Does It Take Longer To Apply For A HMO Mortgage?
As HMO mortgages may be thought of as a more specialised mortgage than a normal Buy to Let, processing times could take a little longer. It mostly depends on the type of HMO mortgage application and the property itself or location. A simple HMO should take around the same as a buy to let mortgage but a more complex HMO could take longer.
Should I Use An HMO Mortgage Broker?
This is really down to personal choice. The clear advantage to using a specialist HMO mortgage broker will know the market and will be able to find you a suitable product quickly.
Knowledge of the market is key here as HMO criteria will differ between lenders. A good broker will have good contacts at each HMO lender meaning a quick yes or no from each lender will be obtained.
In summary, using a HMO mortgage broker will not only save you time but a broker has access to the best HMO mortgage rates available for everybody. Be aware that some brokers do charge broker fees as well as receiving a payment from the lender. As a common rule, we don’t charge broker fees on loans above £150,000 however on smaller loans this will be considered on a case by case basis.
Why Should I Use ABC Finance Limited For My HMO Mortgage?
We aren’t tied to any 1 lender and are totally unbiased, our only interest is in securing the best deal for you.
ABC Finance Limited have built up strong links with lenders over the years which help when guiding an application through to completion. We are able to search the whole market quickly to secure you the best terms available whilst offering you honest advice and market leading rates.
Our HMO mortgage comparison tool gives you an idea of some of the best HMO mortgage rates on the market however there are many more options available.
How Do I Apply For An HMO Mortgage?
- Discuss your enquiry with either suitable HMO mortgage lenders or a broker who can point you in the right direction and issue you with likely terms showing rate and fees etc.
- When a suitable property is found or if this is a refinance, the process can begin. The lender or broker will run through the application form and send a list of the required documentation needed to begin the application process.
- If the initial decision in principle is agreed by the lender (credit searches carried out etc.), the full application can be submitted and all documents will be checked through by an underwriter.
- If everything is acceptable, the valuation will be instructed and legal work started. The valuation report will provide information to the lender regarding property and rental values, demand for an HMO property in that area and condition of the property.
- If the valuation report is satisfactory, the mortgage offer will be issued. A copy of this will be sent to you and your solicitor. If using a broker, they will usually run through this document with you to ensure it is understood and answer any questions you may have.
- Your solicitor will handle the legal work such as carrying out searches etc. When everything is satisfied and the offer document is signed and returned, the funds can be ready to be drawn down.
- Completion of the mortgage can now take place.
Typical Documents Needed To Apply
- Application form or Factfind
- Passport (proof of identification)
- Driving licence (proof of identification)
- Recent utility bill (proof of home address)
- Payslips/SA302 (proof of income)
- 3 months bank statements
- Proof of deposit
- Details of any required HMO Licence
- Tenancy agreements if available