Landlords are planning to acquire Houses in Multiple Occupation (HMO’s) more than any other property type over the next 12 months.
Paragon’s Q4 2019 PRS Trends report found that of the landlords planning to purchase property in the next 12 months, nearly a third (31%) plan to purchase HMO’s, up from 12% just three months earlier.
The research showed that 9% of portfolio landlords – those with four or more properties – plan to add to their portfolio over the next quarter, compared to just 1% of non-portfolio landlords.
HMO’s are typically purchased by portfolio landlords as they offer a higher yield but are more complex to manage. Paragon research shows HMOs achieve a yield of 6.5%, compared to an average yield across all property types of 5.6%.
Aaron Strutt, product director at Trinity Financial, says: "We have been getting more enquires from property investors looking for HMO mortgages across the country because of the strong rental returns. Landlords have to do more work to set up the property and apply for the appropriate licenses."
Call Trinity Financial on 020 7016 0790 to secure an HMO mortgage
There are at least 30 banks and building societies offering Houses in Multiple Occupation mortgages and the rates and fees can range quite dramatically.
Some of the largest lenders offering HMO rates include BM Solutions, Barclays for Intermediaries and The Mortgage Works.
Additional security in the form of a floating charge will only be required from companies that have material assets and business activities other than holding and letting residential investment property.
The Mortgage Works is the buy-to-let lending arm of the Nationwide Building Society.
The lender states that a property is classed as an HMO if a property is occupied by five or more people or with five to seven lettable rooms in an area commensurate with multi letting. Also, if a property has more than one tenancy agreement in place.
The Mortgage Works has a minimum property value of £100,000 and a maximum loan size of £750,000 at 75% loan-to-value. Landlords will need at least 2 years of experience as a standard buy-to-let landlord or one year as an HMO landlord.
All let properties will need to be subject to an Assured Shorthold Tenancy agreement, or either a Short Assured Tenancy agreement and a property must have no more than four habitable storeys and no more than one kitchen. Properties consisting of more than one self-contained unit under a single title are not acceptable and the property must offer a communal seating area.
A Specialist Security valuation will be required.