Why Houses in Multiple Occupation (HMO) need specialist mortgages and insurance products
The House in Multiple Occupation market has grown massively over the past decade, so it’s no surprise there are now new laws that landlords and their properties have to comply with. That’s great news for standards in the sector and for tenants who rent rooms, but it has meant landlords’ costs have gone up which means that you need to choose your mortgage and insurance products carefully.
Specialist House in Multiple Occupation mortgages
All mortgage lenders have tightened their application criteria across the board but there are several additional considerations if you’re applying for an HMO mortgage. So, before you begin, you need to be aware of the following:
- How many rooms? Most lenders will consider up to five bedrooms, but any more may require commercial finance.
- Tenant type. Some lenders believe that letting to students or those on benefits is higher risk.
- Rental valuation. Lenders evaluate income in two ways, either based on room rents or the rental income from a ‘standard’ let.
- Mortgage rate. As the market for HMO finance is less competitive, rates tend to be higher than standard buy-to-let mortgage products.
When you apply for an HMO mortgage, the lender is likely to ask for the following information: -
- Evidence of being an experienced landlord
- HMO address
- The number of lettable rooms, including room sizes, which have recently been updated. For example,rooms which are smaller than 4.64 m2 can’t be used as bedrooms and remember the measure can’t include an area if the ceiling height is less than 1.5m.
- Who you intend to let to, for example, professionals, students
- Whether you are going to manage the tenancy or use an agent
- If the HMO requires a licence
- How the property will be let, for example will each room have an AST agreement
- Expected rents by room and if the property was let normally. This is likely to require evidence from a surveyor.
Each lender has their own rules and as such it is essential to speak to a broker about how and who you will use to finance the property, prior to making an offer. The last thing you want to do is get most of the way down the purchase process and then find that either you can’t get a mortgage or you won’t be able to let the property as you’d planned.
If you haven’t already taken specialist mortgage advice, you can contact our partners, Embrace Financial Services, for a free consultation. An adviser can go through everything you need to know and make sure you get the most appropriate mortgage product for your investment.
Insuring your House in Multiple Occupation
All Buy to Lets need specialist landlord insurance, but you must make sre you have a House in Multiple Occupation - specific product, as insurers consider the risk is higher for a property that’s let by the room. That’s because:
- the property has shared facilities
- there could be cooking in individual bedrooms
- there are likely to be more visitors than normal, etc.
As a result, the terms of the policy are different to those for a single-let property.
It’s vital that if the property requires a licence, you give your insurer those details. Be aware that if you fail to comply with any of the terms of the licence, your insurance could be declared void.
As with any Buy to Let insurance policy, the core cover is for the building – the ‘bricks & mortar’. There will usually be other things that are covered ‘as standard’, e.g. accidental damage and public liability (in case a tenant, contractor or visitor injures themselves in your property). Some policies will also include the following, but do check because it’s worth adding to your policy or taking out separate cover for:
- Malicious damage and theft by tenants
- Alternative accommodation - in case your tenants need to be re-homed while any remedial works needed are carried out
- Rent protection, in case any tenant defaults
- Legal protection
At Your Move, we offer very competitive Rent Protection and Legal Expenses Insurance products, via our underwriter, Aviva, and our provider, ARC Legal Assistance.
And there are more items of cover that it’s a good idea for Houses in Multiple Occupation landlords in particular to consider:
- Your own contents. With a House in Multiple Occupation you’re likely to supply appliances and even furnishings as well as various other items so it is worth considering insuring just in case they’re damaged or stolen.
- Boiler back up services as they tend to be used more than other types of let.
- Appliance breakdown. You can get cover for your white goods and other electrical items.
- Glass & locks replacement.
If you're planning to let to students or Housing Benefit tenants, you must declare that to your insurer. While some will simply add a note to your policy, others may make a small extra charge to cover you.
We offer a wide range of landlord insurance products and our advisers will be happy to provide a quote for House in Multiple Occupation cover, whether you have just one property or are looking for portfolio insurance. Get in touch today about our landlord insurance products.