The ABC Finance Limited HMO Mortgage Calculator
A typical product is 75% LTV at 3% over 20 years, more info about this can be found further down the page or on the HMO Comparison page.
How Much Can I Borrow Against An Hmo?
HMO mortgages start from around £25,000 with no real maximum loan, but this depends on the property itself and your letting experience.
When looking to take out an HMO mortgage, lenders tend to use two different checks to confirm lending levels.
Firstly, a lender will check the loan to value (LTV). This is worked out by dividing the loan amount by the value of the property and multiplying it by 100 and is expressed as a percentage. 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. An example of this would be the purchase of a property for £100,000, a loan of £80,000 would be permitted.
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 rate you can expect to pay. To obtain the best HMO mortgage rates you should keep the LTV at 75% or under. At ABC Finance Limited, some of our clients prefer to keep the LTV low to save on interest whereas some prefer to maximise borrowing to keep deposits to a minimum.
In addition to calculating the loan to value, lenders will look at the rental income and affordability. Some rule that the rental income must be more than the rent by a set figure, e.g. the monthly rent must be 140% of the interest only mortgage payment. There are also many other factors lenders tend to look when assessing applications. Our experts are always on hand to run through these figures with you.
HMO Mortgage Rates
Interest rates can vary based on the clients lettings experience and also the property itself.
HMO mortgage lenders offer either variable rates or fixed rates. A variable rate is just that, meaning it varies and can go up or down during the mortgage term. With fixed rates, the rate stays the same for a pre-agreed time.
Variable rates usually move in line with the Bank of England (BOE) base rate or with the London Interbank Offered Rate (LIBOR).
A fixed rate will stay the same for a period of time meaning that you have the certainty that your payments will not increase for that period. HMO lenders offer fixed rates from 2 years up to 10 years, however, longer terms can be offered.
There are a vast number of HMO mortgages to suit pretty much everybody. If you are unsure when it comes to choosing an interest rate, an ABC Finance Limited advisor will happily talk you through options until you’re found the best HMO mortgage rate for you.
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. Some products offer a flat fee of say £995. These fees 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.
What Other Fees Am I Likely To Have To Pay?
- 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. For more specialist HMO’s, HMO mortgage brokers may have access to specialist HMO lenders. Specialist HMO mortgage brokers tend to charge 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.
- Valuation Fee – A survey or valuation report will be required to satisfy the lender that the property is suitable security. In most cases, this is charged on application and is not refundable once the valuation has been completed.
- Assessment fee – Some lenders charge a fee for assessing the application, this is not refundable once the work has begun.
- TT fee – a telegraphic transfer fee is the fee paid to transfer the funds from the lenders account to either your account or your solicitor’s account. This usually costs £35.
- Early repayment charges (ERC) – If the loan is redeemed within the first few years there is usually an ERC to pay. This is usually worked out at a set percentage of the remaining loan balance.
- Solicitors fees – If there is a solicitor involved there will be a fee to pay, this fee will vary depending on which solicitor you use. It is advisable to obtain a quote before any work is started. In some cases, you also have to pay the lender’s solicitor fees.
HMO Mortgages – 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.
Repayment Or Interest Only
This usually comes down to personal choice.
Capital repayment, means that with each monthly payment, both interest and capital are paid, meaning the loan gradually reduces. Interest only is when with each monthly payment, only the interest is paid meaning the loan balance stays the same for the mortgage term.
Both have advantages and disadvantages. Repayment mortgages mean that the loan is repaid at the end of the term but as a result, the monthly payments are higher. With interest only, the monthly payments are lower but at the end of the term, the loan is still due in full.
Some investors opt for interest only to reduce monthly payments initially. When the loan term ends they sell the property to repay the loan. The aim being to make a profit if the property value increases.
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 mortgage calculator is a useful tool but there may be many factors associated when choosing the right lender and product. To find the best HMO mortgage rates for you, speak to one of our advisors you will receive a detailed quote within 2 hours. This will take into account not only the factors above but other factors such as affordability based on the rent received.