A House in Multiple Occupation (HMOs) is typically rented out to professional sharers and students. They are particularly popular in university towns and cities where there is high demand for this type of accommodation.
They are also fast becoming popular in parts of the country where more people are unable to get on the housing ladder and are therefore turning to renting with others to save money for a deposit. With a higher demand for this type of accommodation, investors are keen to enter the market and reap the rewards of more rent and higher yields.
However, whilst this may appear straightforward, there is so much more to building and managing a successful HMO portfolio than it may appear.
HMOs typically have between three and 10 bedrooms with communal areas such as the kitchen, bathroom(s) and living room.
A large HMO is at least three storeys high with at least five tenants who live there and form more than one household. They will share communal facilities.
Typically rent for a HMO in Bicester is £550 per double room, and can be as much as £1,650 for a three-bedroom HMO. This compares to £1,100 for a three-bedroom house. Gross yields in the area can be as much as 10% for HMOs compared to 4% for a two-bedroom flat.
There are a range of mortgage products available on HMO properties from a variety of lenders, including those on the high street. Most products are available on either a purchase or re-mortgage basis to both individual and limited company borrowers. Interest rates on HMO mortgages are typically higher than a standard buy to let mortgage but you can currently get a rate starting from 1.49% from BM Solutions.*
Many lenders prefer borrowers to have experience as a landlord before they will consider an applicant for an HMO mortgage. There are only a few lenders that accept borrowers without any landlord experience. Therefore, it is advantageous to speak to a mortgage consultant before you set out on the process of purchasing a HMO, to find out what your mortgage options are.
By Michelle Niziol, CEO, IMS Property Group, an independent sales and letting agent, mortgage broker and property investment group. Michelle is also vice-president of ARLA Propertymark
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