House in Multiple Occupation mortgages (HMO) are a way for people to get onto the property ladder. They work by allowing people to purchase a property that is then let out to multiple tenants. At least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen must live in the property. It’s sometimes called a ‘house share’.
There are some risks and disadvantages associated with this type of mortgage. For example, if any of the tenants damage the property, the mortgage holder is responsible for repairing the damage. Additionally, if any of the tenants fall behind on their rent, the mortgage holder is still responsible for making the mortgage payments.
However, there are also some advantages to this type of mortgage. For example, it can be a more affordable way to get onto the property ladder. Additionally, the mortgage holder has the potential to earn rental income from the tenants.
If you’re considering a House in Multiple Occupation mortgage, it’s important to weigh the risks and advantages carefully before making a decision.
Considerations before an HMO mortgage?
Before they consider an applicant for an HMO loan, several lenders desire landlords to have prior experience. There are just a few lenders that will take borrowers without previous landlord experience.
Who is this type of mortgage suitable for?
HMO Mortgages are suitable for people who want to purchase a property that is then let out to multiple tenants. This type of mortgage can be used to purchase properties that are not necessarily located in prime areas, as it is often cheaper to buy a property in a less popular area and then let out the individual rooms.
What are the benefits of an HMO mortgage?
There are numerous benefits associated with House in Multiple Occupation mortgages. One of the main benefits is that they offer an opportunity for people to get on the property ladder who may not be able to do so otherwise. Another benefit is that they can provide a steady income stream, as the rent from tenants can be used to cover the mortgage repayments.
What are the risks of an HMO mortgage?
As with any type of investment, there are always risks involved. One of the main risks associated with House in Multiple Occupation mortgages is that the property may not be let out as often as anticipated, which could result in financial difficulty. Another risk is that the tenants may damage the property, which would again lead to financial difficulties.
How does an HMO mortgage work?
House in Multiple Occupation mortgages works in a similar way to standard mortgages, in that they are typically repaid over 25 years. However, there are some key differences. One of the main differences is that the mortgage lender will often require a larger deposit, as they view this type of investment as being higher risk. Another difference is that the mortgage repayments may be based on the expected rental income from the property, rather than the actual value of the property.