By Mark Alefounder of HD Consultants
It seems as though almost all property investors are enquiring about HMOs at the moment. It really is the topic of choice for a great number of property investors, be they new to the property sector or those with vast experience. It’s almost as if some feel incomplete without an HMO in their portfolio.
Lenders Appetite for HMO Financing
I won’t go into the definition of an HMO property or the rules regarding licensing etc. This can often vary from region to region according to the local Councils own definition of a home of multiple occupation. In fact in terms of licensing some lenders will demand a license be in place whether it’s a council requirement or not.
Unless you are one of the lucky few it’s likely that you will need to arrange some kind of finance to purchase your HMO. Before we go any further, if you didn’t know already, HMO finance is more expensive than a basic Buy to Let. It will be more expensive in terms of interest rates, arrangement fees, solicitor’s fees and valuations. However, don’t let that put you off. Very rarely do I come across someone who moves away from HMOs based on these higher costs.
It’s fair to say that every lender approaches HMO finance in a different way. Lenders who once had an appetite to lend are no longer in the sector whilst new to market lenders see a new opportunity and are keen to establish their place. Meanwhile others will appear to move in and out of the sector almost on a whim. Whilst your average Buy to Let facility varies between lenders criteria for HMO finance can differ much more markedly.
Obtaining HMO Finance
If there was a single word to sum up what all these lenders are looking for when it comes to an applicant for HMO finance, it’s EXPERIENCE. Unfortunately the definition and measurement of “experience” is not the same for every lender. It can vary from 12 months to 3 years and everything in between. Without doubt, obtaining HMO finance is more difficult than that for a straightforward Buy to Let. The mischievous in the market have even suggested that a large number of banks have created ingenious barriers, hoops and hurdles to try and halt the number of properties being converted into HMOs, for fear of the effect on housing in general. Thankfully with brokers like myself investigating and analysing what’s on offer and maintaining contact with the lenders directly we can navigate these obstacles for you.
Unfortunately, typically, getting HMO finance is often a longer process than your “standard” Buy to Let and that is in part due to the additional due diligence that most lenders will undertake. It’s likely that even greater consideration will be given to your credit report, your bank account conduct, the length and type of your employment and your overall property experience to name just a few.
Lenders Criteria for Funding HMOs
So what tends to be the barriers and obstacles that come up most often? What reasons do lenders regularly cite for being unwilling to assist?
• Experience. Lenders expect minimum levels of experience, often at least 12 months and up to 3 years before some will provide finance.
• Not an owner occupier. Lenders take great comfort from the fact that you own your own home.
• Levels of debt in the background and in particular any unsecured debt. Credit cards, store cards and loans can make a big difference to a lenders appetite.
• Location of the property. Is it in an area that has other HMO`s? Does an HMO fit with the surrounding area?
• High Loan to Values. The higher the LTV the more robust the rest of the proposal needs to be to reflect that.
• Valuation. There are a number of different ways that lenders and their valuers assess an HMO. Don’t be over optimistic simply because the rental yield is so good.
• Exposure. The number of properties a lender will allow you to finance with them is ever changing. Always consider your exposure with certain lenders.
This list isn’t exhaustive. I would love to outline all of the various lenders and their individual principles/criteria but to be honest there would simply be too many to list. Not only would such a list be incredibly confusing, it’s likely it would send you to sleep!
HMO Mortgage Brokers/Experts
We are experts in all aspects of property finance and that includes HMOs. We can help you find the right solution to your individual circumstances. Wherever possible we will take into account your future plans as well. If it’s about building a portfolio you should start with a solid foundation. If you have already started your property journey then perhaps it is time to review that foundation and strengthen where necessary.
Advice is what we provide. Advice based on your own very unique situation. What we do is sit down with you and review what you have, analyse your finances and advise on improvements and strategies that will help you reach your goals.
If you are considering purchasing an HMO or just want to discuss property finance in general then please don’t hesitate to contact me. I would be delighted to review your position and suggest ways forward. Please call me on 07716647928 or email me on mark@hdconsultants.net
