HMO Mortgages for Student Landlords
Written on 3 August 2021 by
Student towns and cities usually have a captive and reliable stream of potential tenants. An HMO is typically the best way for a landlord to make the most out of student letting, but there’s a lot to consider before jumping straight in.
What Is an HMO and What Does HMO Stand for?
In short terms, HMO stands for house in multiple occupation. A property is classed as an HMO if it’s occupied by at least 3 tenants who are not from the same household; this sometimes referred to as a “house share”.
If your property is at least 3 stories high and you rent to more than 5 people who are from different households, it could be classed as a large HMO. For a large HMO you must acquire an HMO licence from your local council.
Why is an HMO a Good Choice for Landlords?
It’s important to do some research before buying a property to let to students. You don’t want to miss out on any useful information, like the fact that with an HMO property, you can often charge a higher rent than you would for a standard buy-to-let property. This is because you let out per room - not per home.
For example, you might let a 5 bedroom house to a family all on one assured shorthold tenancy for £1,500 per month or, with a student let you could let those 5 bedrooms to 5 individuals, charging £500 per room which would give you a return of £2,500 per month.
Arranging a Mortgage for an HMO property
An HMO mortgage is a type of specialist buy-to-let mortgage. They tend to be offered through specialised brokers, rather than directly to the landlords, as the application process can be a lot more thorough compared to a standard buy-to-let.
For example, landlords will sometimes need to prove their experience before certain HMO mortgage lenders will approve them. They’ll also often be requirements regarding the property itself – like where’s it’s located, the number of lettable rooms, the number of storeys and whether there are suitable communal areas for tenants.
Arranging HMO mortgages can sometimes become more restrictive or expensive than a standard buy-to-let mortgage. This is due to a limited market in terms of lenders that offer this type of mortgage, as well as the fact that HMO mortgage rates do tend to be higher in comparison to standard buy-to-let rates as there is typically less competition in the HMO market.
Whilst it can sometimes be more challenging to get a HMO mortgage, that doesn’t mean it’s impossible. We have a team of specialised brokers at John Charcol who are here to guide you through the process.
How to Prepare for an HMO Property
- Do Your Research
Make sure there’s a demand for rooms to be let on an individual basis in your chosen area and that there’s a university within 30 minutes walking distance. If you want to make the most out of your investment and compete with rental prices, do some research on similar properties in the area. This helps ensure that you’re not overcharging on rent and possibly losing out on any business.
- Pick the Right Property
Demand in student areas is consistent, with students typically looking to rent for a minimum of 12 months. The most popular properties would usually have a minimum of 3 bedrooms, along with large communal spaces. A garden and more than one toilet or bathroom are also great additional selling points.
- Check Licencing Requirements
Once you have chosen your area, check to see what the licencing requirements will be from the local council and the costs of these.
- Housing Lists
If you’re planning on buying near a university, you should contact them and find out how to get on their housing lists. This means you’ll have access to potentially hundreds of students looking for approved housing. This will usually require an inspection of the house on an annual basis.
- Keep the Tenants Happy
Having a good relationship with your tenants is important. If there are problems or complaints, it’s important to deal with them as quick as possible and ensure there’s regular communication. Be respectful to your tenants but firmly state the rules of the tenancy agreement and payment terms.
- Protect Your Income
Student tenants can sometimes be difficult to reference using the standard process, as they aren’t likely to have a regular income, and have previously only ever lived with parents. A good method is to seek a guarantor for each student tenant. A guarantor will usually be a parent or a guardian. This means that they can be referenced and held responsible should the tenant fail to pay rent.
John Charcol have access to over 20 HMO mortgage lenders and are here to help you secure the best rates for you. Get in contact on 0330 433 2927 or enquire online today.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.