HMO and multi-unit freehold block finance: what lenders check

Houses in multiple occupation, or HMOs, and multi-unit freehold blocks are popular with property investors, but they are assessed differently from a standard buy to let. Here is what lenders commonly look at.

What they are

• An HMO is a property let to several unrelated tenants who share facilities such as a kitchen or bathroom.
• A multi-unit freehold block, often shortened to MUFB, is a freehold building containing several flats, owned by a single owner and financed with one mortgage.

How lenders assess HMOs

Fewer lenders offer HMO mortgages, and the ones that do look closely at:

• The layout, the number of rooms and the standard of the property
• Whether the property has, or can obtain, any licence it needs
• Your experience as a landlord
• The rent the property can produce compared with the loan payments

Licensing and planning

In England, a property let to five or more people from more than one household normally needs a mandatory HMO licence. Councils can add their own licensing schemes, and some use planning controls, known as Article 4 directions, to limit new HMOs in certain areas. Check with the council before you buy, since a property that cannot be used as an HMO will not support the income you expect.

How lenders assess multi-unit blocks

For a block of flats under one freehold, lenders usually look at the combined rent from all the units, the condition of the building, and whether each flat meets standards, including fire safety and energy performance. Some lenders have limits on the number of units or on the size of the loan, and some will not lend on buildings with a commercial unit below. Tell your adviser exactly what the building contains.

What to prepare

• Details of the property, its layout and any licences
• Tenancy agreements and the rent roll, if it is already let
• Your property portfolio and experience
• Whether you are buying personally or through a limited company, which changes how lenders assess the loan and which also has tax consequences that your accountant can explain

Risks to think about

Rental income is not guaranteed, and an HMO or a block can be empty at times. Repairs, safety requirements and licensing can add costs. Your property may be at risk if you cannot keep up the mortgage payments, so make sure you test the figures carefully.

Find out more

Read more about buy to let and HMO finance, or see our local pages for Colchester and London.

Talk it through

If you are considering an HMO or a block, get in touch.