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Commercial HMO Mortgages

A commercial HMO mortgage might be the right fit for your new venture. Find out more about what’s involved

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: July 11, 2022

If the property you want to invest in does not fall under the confines of a typical buy-to-let HMO (house in multiple occupation), you could be looking at a commercial HMO mortgage instead.

While the scope, features and parameters of these loans are somewhat vague, there are calculated benefits of going down this route if your circumstances fit. But first, you can find out more about borrowing this way and how to go about securing it in this guide.

Can you get a commercial mortgage on a HMO?

Yes, it is possible to borrow commercially for a HMO, however you must meet the criteria of these kinds of loans to secure one. If there is a profit-making aspect of the property you are looking for a mortgage on, this would fall within the remit of a commercial HMO and these products are becoming increasingly popular in the marketplace.

Perhaps you are converting a current HMO into a commercial property, or vice versa. Or maybe the building is an unusual setup that combines multiple occupancy residential space as well as commercial facilities.

Whatever the scenario, these kinds of mortgages do exist for the right applicants and the right property, but it’s worth getting professional advice before you go further down the line to determine whether this product would fit with your situation.

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Do you always need one for this type of property?

If the HMO property is one where commercial business and living arrangements meet, you will need this niche loan. If your HMO building does not fall within any kind of trading or commercial activity, you might be able to look at straightforward buy-to-let mortgages instead.

While the market is abundant with buy-to-let mortgages for HMOs at decent rates, there are HMO commercial mortgages with equally favourable rates attached to them if you know where to look.

Examples of properties

There are many kinds of scenarios and buildings that this product could apply to, but they’re not always commonplace. To give you an idea of which properties would qualify, they are places like pubs with living space for occupants, B&B guesthouses, student accommodation, and mother and baby units.

If you have bought a commercial space and intend to convert it into HMO, this would fall in this bracket, or indeed converting a HMO into a family home. Really it is at each lenders’ discretion to determine what falls within this product’s remit, so it is worth speaking to a broker first to get a clearer picture on your position.

How to get a commercial HMO mortgage

The application process for this kind of financing is similar to a standard mortgage, but there are extra components you’ll need to have prepared. Here is our step-by-step guide on what your initial moves need to be, and how to proceed:

Step 1: Gather all vital information:

You will need to show your lender the full picture of who you are, and what your circumstances and intentions are. Have important details at the ready, such as how many rooms the property has, where it is, what state it’s in, what type of establishment it will be, how much income you will get, how much you’ll need to spend and who will manage it. A comprehensive business plan or projection is ideal.

Step 2: Establish your credit score:

Understanding how your historic financial behaviour might affect your application will prepare you for any obstacles you might encounter throughout the process, and what kind of deal you can expect. Previous experience as a landlord could also be a factor.

Step 3: Get your paperwork together:

Speed things up by getting this together as soon as you can. This way you have time to collate anything that’s missing or that might take a while to get hold of. You will need personal information such as proof of address, ID and income, financial documents such as bank statements and any relevant certificates, as well as anything vital from the property, such as leases, accounts or schedules.

Step 4: Find a commercial mortgage broker:

The sooner you do this in the process, the smoother and quicker it will be. A reliable advisor can help you to ascertain how much you might qualify to borrow, what rates are available, what your term length might be, and what deposit and fees you could pay. Most commercial HMO mortgages can only be accessed via commercial mortgage brokers, so this step is crucial to your success.

Can you use a portfolio mortgage to buy multiple HMOs?

While each lender will have their own rules, in theory it is a possibility that you could add HMOs to your portfolio mortgage. This is a fairly standard practice for landlords and investors, and portfolio buyers usually go through commercial loans rather than HMO products. You can add HMOs to a mixture of other properties in your portfolio too, including semi-commercial and buy-to-let buildings.

Eligibility criteria

There will be a number of hurdles you will have to overcome before being accepted for this kind of borrowing, however each set of criteria will vary from lender to lender. Some may consider your application even if you have no experience as a commercial landlord or investor, for example, while others won’t. Some will set a minimum income barrier while others will look at your affordability in a different way. Some will set age limits, others won’t.

  • You will need to meet the standard criteria for a business mortgage, which you can find in full in our complete guide to commercial mortgages.
  • Additionally, your property will need to meet specific requirements to qualify as an HMO – Firstly, it will need to include accommodation space that non-family members can rent and share facilities, such as a bathroom or kitchen.
  • Some lenders might also impose a cap on the number of accommodation spaces the property can have and may reconsider their lending decision if the property does not have a licence from the local council.

Deposit requirements

As with standard mortgages, the bigger your deposit, the better rates you will unlock and you will be considered a more attractive borrower. The very top limit on what lenders will stretch to here will be 75-80%, although it might depend on the amount you want to borrow.

What interest rate to expect

This will always be determined by the lender and how strong your eligibility is, however there are some good rates out there for this kind of product, despite the lack of competition. Typically you’ll be looking at between 2-5%.

Who are the lenders?

Specialist financiers who provide these types of mortgages include Landbay, Precise Mortgages, Shawbrook Bank and The Mortgage Lender, among others.

One thing to keep in mind about commercial HMO lenders is that approaching one directly is not recommended. Doing this would mean limiting yourself to one range of products and potentially missing out on a better deal that could be available elsewhere.

A broker who specialises in commercial HMO mortgages can open up a much wider market to you. They have the knowledge, experience and lender contacts to improve your chances of landing the best deal available.

Get matched with a commercial HMO mortgage specialist

Understanding whether this is the right loan for your venture is the first hurdle to overcome. Coming out of the application process successful, having secured a good deal is the next. The brokers we work with are matched to your circumstances and hold your hand throughout – we can even pair you with one who specialises in commercial HMOs.

They are reliable, impartial, and work hard to ensure you have a clear picture on what an HMO commercial loan might mean for you. They will also provide assistance in putting together an effective application. Call us today on 0808 189 0463 or make an enquiry online for a free, no-obligation initial call.

FAQs

Are there HMO mortgages for limited companies?

Yes. Some landlords set up as a limited company for tax purposes, and so getting an HMO via a limited company is becoming more commonplace in the market. You may save money if you are a limited company.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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