Buying Your First HMO 2018-06-15T12:01:08+00:00

Buying Your First HMO

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Houses in multiple occupation or HMOs are becoming more popular and investing in them is a highly profitable approach to letting.

An HMO is a specialist type of buy-to-let property. They are typically a single property, let to three or more individuals on separate tenancy agreements and with bedrooms rented out separately, often sharing some common areas such as bathrooms and kitchens.

HMO mortgage lenders prefer to see some level of experience from an applicant as a landlord, although it’s not impossible for a first-time buyer to secure HMO funding.

Existing Or Experienced Landlord

An existing or experienced landlord is generally classed as somebody who owns at least one investment property already and has done for over a year. If you have lettings experience, you will have a large choice of lenders and products to choose from.

HMO Mortgage For A First Time Landlord

If you are a first-time landlord and wish to apply for an HMO mortgage, the choice of lender is limited. That doesn’t, however, mean to say that the interest rate will be high. Although an HMO may be a stronger investment than a standard buy-to-let, there is more work involved in managing the property.

Most lenders insist on some form of letting experience before they will lend to somebody buying an HMO.

First Time Buyer HMO

If you don’t currently own a property in the UK, you will be classed as a first-time buyer for mortgage purposes. As a first-time buyer, the choice of lender is very low and the criteria for borrowing is stricter. You could expect to pay an interest rate of over 5%, but even then, a profit can still be made given the strong rental yield.

Things To Consider

When looking to buy your first HMO property, the basic things you should be looking at are:

  • Location: You should look at whether the location of the property is desirable for people wanting to live in an HMO e.g. near a university, hospital or city centre. Different locations will also provide different rental yields. Research of the competition is also key, if there are lots of untenanted HMOs in the area it will drive demand down.
  • Tenant profile: The property location may have an impact on the type of tenants attracted to the property. If it’s near a university, you may attract students, near a city centre you may attract working people who wish to live nearer their place of employment. Be aware, not all lenders allow all tenant profiles.
  • The property: Make sure the property is appropriate and desirable for letting. If the property is modern and clean it is more likely to attract tenants.
  • Rental voids: If the property was vacant, could you afford to pay the mortgage and any bills? It’s worth keeping a contingency fund of around 3 – 6 months to make sure everything gets paid should the property be vacant.
  • Affordability: You should always check the monthly mortgage payment and household bills come to less than the monthly rent. Allow for any future interest rate increases or you may find yourself paying towards this.
  • Repairs: If, for example, a boiler breaks down, you should have funds readily available to repair this quickly.
  • Fire safety: You must make sure that the property itself meets the requirements of being an HMO and that essentials like fire doors, smoke alarms and fire escapes are all in place.
  • Tax: As with other investments, your HMO could be liable for various taxes such as income or capital gains tax. You should always seek expert advice about this.

If you are thinking of buying an HMO property and would like more information, please call us on 01922 620008 or visit our contact page and we will be happy to answer any questions.

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