What HMO finance costs
HMO finance is priced against the property, the rental income and your experience. A licensed HMO that already trades has a clear income to lend against; a house you are buying to convert is assessed on the bridge plus the works and the exit. The figures below are indicative bands, not a quote.
On an HMO valued at £400,000, a mortgage at 75% loan to value funds £300,000, provided the rooms produce enough rent to pass the lender's rental stress test at 125% to 145% of the payment. The balance is your deposit or existing equity. These figures are an illustration to show how the sizing works, not a promise of any particular rate, value or loan.
Four things that move your terms
The rental income
The combined room rents drive the rental stress test, and a strong income can take a small HMO to the loan to value ceiling while a weak one caps the loan below it.
Loan to value
The lower the leverage, the keener the rate. Pushing towards the top of the band, or a heavier conversion, costs more and needs a stronger case.
Your experience
Prior HMO or landlord experience opens up more lenders and better terms. First-time HMO investors can borrow, usually at more conservative leverage and price.
The property and licence
Room count, use class, whether it is a small, large or sui generis HMO, and the licensing position all feed into the rate a specialist lender will offer.
Rates & costs: FAQs
What are HMO mortgage rates?
HMO mortgages are usually a little dearer than plain buy-to-let because fewer lenders offer them and the property is more specialist. As an indicative band, expect around 5.5% to 6.5% a year depending on the fix length and the loan to value, with the sharpest rates on lower leverage and longer fixes. These are indicative bands, not a quoted rate; we source terms from whole-of-market HMO lenders for each property and your circumstances.
What does HMO conversion or bridging finance cost?
Short-term finance to buy and convert a house into an HMO, or to refurbish one, is usually priced as a monthly interest rate, indicatively around 0.75% to 1.1% per month depending on the works, the loan to value and your experience. Interest is often rolled up and settled on exit, which is a refinance onto a term HMO mortgage or a sale. As with all our figures, these are indicative bands rather than an offer.
How does the rental stress test work?
Lenders check that the room rents cover the mortgage payment by a margin, the interest coverage ratio, typically 125% to 145% depending on your tax band and the product, measured at a stress rate that can be above the pay rate. If the rooms comfortably clear that margin, you can borrow up to the loan to value ceiling; if not, the rent caps the loan below it. This is the single biggest driver of how much you can borrow against an HMO.
What fees are there?
Expect a lender arrangement fee charged as a percentage of the loan, plus valuation and legal costs, and on bridging sometimes an exit fee. HMO valuations can cost more than a standard buy-to-let valuation because the property is specialist. We set out all costs before you commit, and there is no charge to enquire.
Get indicative terms for your HMO
Send us the value or purchase price, the room count, the expected rents and the licensing position and we will come back with indicative terms.