Specialist rental properties can offer different rental yields from a standard single-let property. They can also be assessed differently when it comes to buy-to-let finance.
What counts as an HMO?
A House in Multiple Occupation (HMO) is generally a property occupied by several tenants who form more than one household and share facilities such as a kitchen, bathroom or toilet.
In England, a property will generally be considered an HMO where at least three tenants live there, forming more than one household, and share facilities. Larger HMOs occupied by five or more people from more than one household will generally require a mandatory HMO licence.
However, HMO definitions and licensing requirements vary across the UK. Local authorities can also introduce additional licensing schemes that may apply to smaller HMOs.
If you’re considering purchasing or refinancing an HMO, it’s important to check the requirements with the local authority responsible for the property.
Licensing and planning
Licensing isn’t the only consideration.
In some areas, an Article 4 direction may restrict permitted development rights for changing the use of a family home into a small HMO. Where this applies, planning permission may be required.
Mortgage lenders will usually want to understand the property’s planning and licensing position and may require evidence that it complies with the relevant local requirements.
What do HMO lenders look at?
HMO lending is more specialist than a conventional buy-to-let mortgage, so lenders may consider factors including:
- Your experience as a landlord — some lenders prefer applicants who already have experience managing rental property or HMOs.
- The number of lettable rooms and property layout — the size, configuration and facilities available can affect the lender’s assessment.
- Licensing and planning — the lender may check whether the appropriate licence or planning permission is in place or required.
- Location and rental demand — local demand and the property’s ability to generate sustainable rental income can be important.
- How the property is let — for example, whether tenants rent individual rooms or the property is occupied under a single tenancy.
What other properties can require specialist finance?
Specialist property doesn’t only mean HMOs. Other examples can include:
- Multi-unit freehold blocks (MUFBs) — several self-contained flats held under one freehold title.
- Holiday and short-term lets — where occupancy and rental income may fluctuate throughout the year.
- Student accommodation — including properties specifically let to groups of students.
- Flats above or next to commercial premises — where the nature of the neighbouring commercial property can form part of a lender’s assessment.
Different lenders have different criteria, so the options available will depend on both the property and your circumstances.
How can the valuation differ?
Valuation can be particularly important with specialist property.
Depending on the property and lender, a valuation may consider its investment value and the rental income it can generate, rather than relying solely on comparisons with similar properties that have recently sold nearby.
Different valuation approaches can produce different figures. As the valuation can influence the loan-to-value calculation, it may also affect how much you’re able to borrow.
Speak to a specialist mortgage adviser
Specialist property finance can involve more considerations than a standard buy-to-let mortgage, from licensing and planning requirements to lender criteria and valuation methods.
You don’t have to navigate those options alone.
At Morrow, our mortgage advisers can help you understand the finance options available and identify solutions suited to your property, budget and longer-term plans.
We can compare products from a wide range of lenders, explain the differences clearly and help you make an informed decision with confidence.
Speak to Morrow today to discuss your specialist property finance options.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The information provided is for general guidance only. HMO licensing and planning requirements can vary by location, so you should check the requirements that apply to your property with the relevant local authority and seek professional advice where appropriate.
