For Remortgaging & Buying Investment Property In The UK
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First-time investors and experienced single-tenant landlords may be attracted by the impressive returns on HMOs. Projected annual returns of 4-5% for a straightforward buy-to-let can be doubled for a multiple-occupancy letting. Which is more than enough to persuade many landlords to tackle the additional licensing and finance requirements.
A house in multiple occupation (HMO) is any rental property with shared facilities (such as bathrooms and kitchens) which is rented out to three or more people who aren’t part of a single "household" (usually a family). They’re often just known as a "house share".
What many people refer to as an HMO is actually a Large HMO, which is a rental property with five or more tenants, where the tenants share toilet, bathroom or kitchen facilities.
As a landlord, you don’t need a licence to run a standard HMO with four or fewer occupants. But different mortgage lenders for these specialist buy-to-let mortgages may have different definitions and requirements for their HMO lending.
Landlords do need an HMO licence to operate a Large HMO, which will usually be valid for five years - which is why they are sometimes referred to as Licenced HMOs.
Smaller HMOs, which don't need to be licensed, have commonly been referred to as "unlicensed HMOs," but the term can seem to suggest that they are somehow illegal or fly-by-night. Some owners, local authorities and lenders refer to these smaller HMOs as multi-lets, "HMOs Not Required To Be Licensed," or "non-licensable HMOs".
With the cost of buying a home still rising, the demand for affordable rented accommodation remains very strong. Local listing sites (Gumtree, Zoopla, Rightmove…) will help first-time landlords to assess the strength of demand from prospective tenants:
Landlords can manage their HMO property by setting up one "joint and severally liable" agreement covering all the tenants, or using an individual contract for each tenant.
Prospective landlords may see HMO properties advertised for sale offering “100%+ gross yields”. Profits may be maximised by running the property through a limited company structure, but first-time landlords need to be aware that costs for HMO properties are considerable. They include:
A specialist HMO mortgage advisor will be happy to discuss your requirements:
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