How Just Mortgage Brokers Can Help You
If you are looking to let a multi-room property out to multiple occupants who are not related – such as shared student accommodation – then you need to be aware of HMO legislation. Unfortunately for buy-to-let landlords, different local authorities have differing criteria on what is and is not an HMO – and which need to be formally licensed. Perhaps even more frustratingly, mortgage lenders can also vary in their definition of an HMO, and what types of properties they will lend against. For that reason, it can often be advantageous to work with an HMO mortgage broker when looking for HMO mortgages.
What is an HMO?
For new and experienced investors alike, the world of buy-to-let property investment involves getting to grips with the varied responsibilities of being a landlord. It is important to keep up to date with the many laws and regulations that put obligations on you as someone renting property out to others. One important aspect of property regulation is that relating to Houses in Multiple Occupation (HMOs) – and this can also have a bearing on getting a mortgage.
The definition of HMOs as a distinct type of property letting was outlined in the Housing Act 2004 – and by the Housing (Scotland) Act 2006 in Scotland. The acts were intended to set out protections and safeguards for tenants living in multi-unit properties, which had historically shown to put tenants at greater risk, either due to the actions of other tenants, or as a result of inadequate safety precautions or property maintenance on the part of the landlord. The respective housing acts aimed to make it easier for local authorities to be sure that certain key requirements – for example, fire safety rules – are being adhered to, by requiring landlords of certain types of properties to obtain a licence. Note, however, that not all HMOs require licensing.
An HMO is broadly defined as any property in which a washing or cooking area, or a toilet, is shared by three or more people from two or more “households” – a household in this context can be a family, couple or a single person within a single unit of the property. Usually each household in a property will have a separate tenancy agreement with the landlord, but there can be exceptions – for example, there may be cases where four students sharing a house can have a single overall tenancy agreement; in this case the law would still consider them to be four separate households. Other examples of HMOs can include shared houses, hostels and shared worker accommodation. They may also be referred to by other phrases such as multi-lets, or multi-unit properties.
Which HMOs require a licence?
The housing acts require that certain types of HMO – specifically larger properties with multiple tenants that potentially present higher risk – be licensed by the local authority. Mandatory licensing applies to properties with at least three stories, with five or more occupants making up at least two households. To obtain a licence you must be a “fit and proper person” – your previous track record as a landlord will be taken into account when considering your licence application.
In addition to the mandatory licensing requirements laid out by central government, local councils also have the authority to set down “additional licensing” criteria that require other types of HMO to be licensed. Additional licensing requirements can be introduced by local authorities if, for example, HMOs of a certain type or in a certain geographical area have been shown to have a greater fire risk.
If you are looking to operate an HMO, it’s important to check with your local council whether a licence if required; failing to obtain a licence where necessary is a criminal offence and can result in fines of up to £20,000 in England and Wales, and up to £50,000 in Scotland.
Finding an HMO mortgage provider
Perhaps unsurprisingly, HMO mortgages represent a fairly specialist niche within the mortgage market, so you should not necessarily expect to be able to pop into your local high-street bank and get a multi-unit property mortgage. Of those lenders who do offer HMO mortgages, each may have its own criteria and definitions of what properties are HMOs, and whether they will lend on them. For example, it is not unusual for a lender to refuse to lend on any property with more than a certain number of rooms or storeys.
Lenders who provide HMO mortgages can also vary in lending limits, deposit requirements and also whether they will offer lending to applicants without an established track record as a property landlord. It is not always easy to find the right lender with the best HMO mortgage rates, but Just Mortgage Brokers is an HMO mortgage broker with years of experience in sourcing lending for landlords looking to buy multi-unit properties to let. Contact us today to discuss how we can help secure the mortgage that is right for you.