HMO Properties
Changes to The 2004 Housing Act introduced on 6 April 2006 fundamentally changed the historic view of what constituted a HMO. Henceforth not only were many smaller properties captured in the net but also the landlord had to qualify as a fit and proper person.
Application costs and methods vary according to the practice of the Local Housing Authority within which the property is built. And the licence only lasts for 5 years ensuring continuity of revenue for the LHA.
There is an additional impact on what constitutes a HMO and how lenders view them. Most vanilla BTL lenders will not lend on HMOs so landlords looking to buy further properties will find many established routes closed and indeed may be unpleasantly surprised that refinancing existing loans may prove difficult if the property is being refinanced for the first time since April 2006.
A HMO Mortgage will be assessed in the same way as a BTL mortgage with rent to interest cover calculation as well as LTV limits. Sometimes the RTI cover will be less accommodating than vanilla BTL as landlords can end up with additional costs for heating, electricity and rates as the individual units within the property may not have separate meters or rates bills. It is also a principal reason why rental returns on HMOs are higher than equivalent rental properties.
HMO mortgages are often viewed more commercially by lenders and perceived as higher risk (requiring active landlord management) resulting in more cautious LTVs and higher margins.
