HMO Mortgage Lenders
The HMO property sector is a growing market and is increasingly becoming more complex when it comes to lender solutions. Finding a HMO lender who can meet your needs can be challenging - one area that often is a sticking point is on the valuation process - there is basically no standard valuation framework that HMO lenders use so this can lead to a gap in value expectations depending on who you are dealing with.
Using a good mortgage broker who can take you through the different finance options of this specialist property type is essential - call our mortgage HMO team on 0117 403 4474 or complete our callback request form.
We can provide:
- A personal service
- Access to a range of competitive HMO lender finance products short and longer term
- Solutions for individuals, LLPs and limited companies
- Extensive inhouse knowledge
The demand for alternative mortgage finance has increased because of the recent changes in the buy to let mortgage market regulations.
Traditional Lenders' Criteria
Due to the recent regulations implemented by the Prudential Regulation Authority, traditional lenders’ criteria have become more stringent than before.
Strict income stress test
Traditional lenders will now implement a strict income stress test, designed to accurately assess whether the applicant can afford the mortgage. In order to satisfy the income stress test, applicants will have to prove that they can afford the HMO mortgage repayment in the event that the interest rate increases to 5.5%.
Property portfolio review
As a result of the PRA’s regulation changes, traditional lenders now will complete an in-depth review of the applicant’s property portfolio to identify any properties that are not profitable. If the traditional lender finds a property that is not profitable then it is likely the applicant’s request for an HMO mortgage will be unsuccessful. It should be noted that applicants can no longer spread equity across their portfolio to ‘hide’ a property that is not providing a profit.
Rental coverage ratio
Applicants will need a rental coverage ratio of up to 170% for an HMO mortgage. The reason traditional lenders require applicants to have such a high rental coverage ratio is to account for any period of time where the applicant’s property is without tenants. Applicants cannot simply state how much they want to charge as rent to meet the coverage ratio requirement, instead they must provide a valuation from a professional surveyor.
Private HMO Mortgage Lenders
A mortgage from a private HMO mortgage lender doesn’t differ from a mortgage from a traditional lender, in terms of the mortgage agreement; you secure a certain amount from the lender and make periodic repayments throughout an agreed term of finance.
However, unlike traditional lenders who require applicants to provide a deposit of at least 25% of the value of the property, private HMO mortgage lenders are more flexible in terms of their deposit requirements. Some private lenders are prepared to take a smaller deposit, so long as the applicant can provide additional security.
Traditional lenders’ HMO mortgage criteria can be difficult to satisfy, which may make it seemingly impossible for some HMO landlords to obtain the mortgage they need. In addition, traditional lenders’ applications can take up to several weeks or even months to process; this may lead to costly delays and applicants potentially losing out on attractive HMO opportunities.
Conversely, an application with a private HMO mortgage lender can be more straight forward and take far less time than an application with a traditional lender.
It should be noted that private lenders typically require the following before granting an HMO mortgage:
- Proof of income: A number of pay slips will be requested
- Bank statements: You will need to provide a certain amount of bank statements to prove you can afford the monthly repayments.
- Three years accounts: If you are self-employed, private lenders will request at least three years’ worth of accounts.
Private HMO mortgage lenders are not available on the high street and their mortgage deals usually cannot be found on comparisons websites. If you want to get a real picture of the HMO mortgage deals available to you, it is advisable to contact a specialist property finance broker.
Why Choose Fair Mortgages for an HMO Mortgage
As a mortgage broker, we specialise in arranging HMO buy to let mortgages and negotiating with private lenders to get the best deal for our clients.
If you need a mortgage for an HMO property, we have the experience and expertise to guide you through the HMO mortgage market. We can find you the financial solution that suits your set of circumstances.
We regularly work with private banks, specialist lenders, family offices and wealth managers who are willing to provide HMO mortgages to applicants that may not necessarily meet traditional lenders' criteria. Call our mortgage HMO team on 0117 403 4474 or complete our callback request form.