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Financing Houses of Multiple Occupancy

Steve Light comments

As we approach half way through 2018, borrowing for HMO properties is still popular with investors but they are now moving from borrowing in personal names to that of a limited company, owing to changes for the buy-to-let mortgage interest tax relief.

It is good to differentiate between what is deemed renting on a shared basis and what is categorised as being on an HMO basis, from a mortgage lending perspective.

For shared renting, generally this is up to four people or, in the case of Birmingham Midshires, five people (subject to criteria). However, many lenders will require all sharers to be named on a single tenancy agreement. In addition, restrictions on the type of tenants may be stipulated by the lender (for example students). It is important that there are no locks on doors to the bedrooms/living rooms. As for allowing licencing, some lenders allow licencing, others won’t; be careful if future licensing is to be introduced.

If we look to lending based on four or more people residing at the property, this will usually be classed as a Multi-Let HMO. Generally, most lenders like to see a track record of already being a landlord with a minimum number of years of BTL landlord experience in place, with some of the more specialists’ lenders, such as Aldermore and Paragon, looking for 2-3 years HMO experience also. However, lending for first time HMO landlords, although a little restricted, may still be available.

The main issue with HMOs centres on the valuation of the property. For any property that has recently been refurbished with or without major works, the common request is, “can the property be valued-up on a commercial basis?” This is in addition as to whether potential lenders require the property to have been owned for a certain period (usually six months) or for the property being tenanted for up to three months post completion of the works.

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