In recent years, Houses in Multiple Occupation (HMOs) have grown in popularity amongst investors. Also known as house shares, they offer landlords the chance to maximise rental yields by taking on multiple tenants from different households.
As house and rental prices soar, demand for HMOs is growing – especially from young professionals in major cities such as London, who see house sharing as a way to reduce the burden of rental costs.
So, what are HMOs, why are HMOs so popular, and how do they affect getting a mortgage on a Buy-to-Let (BTL) property?
What are HMOs, exactly?
A property is classed as a HMO when it has at least three tenants who are not from the same ‘household’, but who share the bathroom, kitchen and other facilities. In short, the tenants aren’t relatives or in a relationship, but they have chosen to live together.
Any property can become a HMO, although you might require a licence from your local council beforehand. For large HMOs (5+ people, 3+ storeys high, and shared bathroom and kitchen facilities), a licence is always necessary.
Licences are based on individual properties. They are valid for five years, and come with a number of obligations for the landlord:
- You must have no criminal record and must not have breached any laws or codes of practice as a landlord;
- You must avoid overcrowding by ensuring the property is suitable for the number of tenants you are looking to take on;
- You must obtain an up-to-date gas certificate every year for the council; and
- You must install and maintain fire alarms and provide safety certificates for all electrical appliances.
Why are HMOs so popular?
Considering the stringent licensing process, you may be wondering: why are HMOs so popular? While there are certain hoops to jump through as a HMO landlord (not to mention the additional administration that comes with managing multiple tenants), the rewards can be substantial.
HMO yields are significantly higher than that of traditional BTL properties – often by about three times. And this gap is growing. According to Multi-Let UK, the average gross return has increased by 18-20% over the last five years, compared to 6-8% for standard BTL properties.
So, how can overseas investors take advantage of these returns and leverage their finances through expat mortgages?
How to get a HMO mortgage
All expat mortgages are subject to stricter criteria than traditional BTL mortgages, and this is no different where HMOs are concerned. This makes it vital to secure an Agreement in Principle before you move forward with an investment, to avoid potential pitfalls in the buying process.
Mortgages with a Loan-to-Value (LTV) ratio of up to 75% are available for overseas investors – the key is navigating the complex UK mortgage market with expert support. As independent brokers specialising in expat mortgages, including multiple occupation, Liquid Expat Mortgages can help you figure out how to get a HMO mortgage.
To find out more about HMOs, or request a free, no-obligation quote, contact our advisors on +44 (0) 161 871 1216. Alternatively, fill out our enquiry form and a member of the team will be in touch.