A major high-street lender has launched new mortgages for landlords letting houses in multiple occupation (HMOs), but how do these deals compare with those on offer from specialist providers?
Leeds Building Society has unveiled new five-year fixed-rate HMO mortgages, potentially offering greater option to thousands of landlords who have seen their properties reclassified as HMOs after recent rule changes.
Here, we explain how HMO regulations work and assess the mortgage market for landlords letting out shared properties.
What is definitely an HMO?
A property let to 3 or even more people from more than one household (such as a shared student property) is classed as a HMO in England and Wales. When the property is let to five or more people it’s classified as a ‘large’ HMO.
Large HMOs require licences from the local council, which are subject to an inspection and should be renewed every 5 years.*
Lenders consider HMOs as specialist properties, which means obtaining a mortgage on a single can be more complicated and expensive than should you be letting a typical home.
Previously, a property was only classified as an HMO whether it was at least three storeys high, however this rule was removed in England and Wales last October, pushing a large number of rented homes in to the HMO category.
In Scotland, an HMO is regarded as a house let to a minimum of three unrelated people who share your bathroom, toilet or kitchen. These properties must have a licence, that is reviewed every 3 years.
In Northern Ireland, HMOs should be registered with the Housing Executive.
*Editor’s note: This article was updated on 18 February to clarify that properties with three or more unrelated tenants are called HMOs.
Leeds launches HMO mortgages
Leeds Building Society has unveiled a number of new five-year fixed-rate mortgages for landlords operating small and large HMOs.
The move follows its launch of two-year fixed-rate products recently, which made Leeds the first major high street lender to provide specialist HMO products.
The Leeds range is available at maximum loan-to-value (LTV) ratios of 60-75%. The products come with upfront fees ranging from lb999-lb1,999, and all sorts of offer cashback of lb500.
Leeds says these products ‘meet the requirements of landlords seeking to diversify their portfolios and transfer to this sector’. It also says that it's started offering cashback rather than free conveyancing following feedback that many landlords would rather use their own solicitors with this side from the process.
HMO mortgages from Leeds: the specifics
The Leeds range is split into separate deals for ‘small’ and ‘large’ HMOs, with borrowers capable of taking out loans as high as lb750,000.
Leeds defines a ‘small’ HMO as a property inhabited by up to six people, while a ‘large’ HMO is really a property occupied by seven or more.
In both cases, however, the lender is only going to offer mortgages on properties with a more eight bedrooms.
Leeds says it will assess ‘small’ HMO applications in the same way that it would a conventional buy-to-let property (according to projected rental income and also to what degree this covers the price of the mortgage), while ‘large’ HMOs is going to be assessed commercially (based on their projected rental yield in relation to the value of the property).
Do any other lenders offer HMO mortgages?
There are currently 11 providers of specialist HMO mortgages, having a total of around 200 products on the market.
The majority of deals originate from specialist buy-to-let lenders, and lots of require you to apply via a large financial company (something which is typical with buy-to-let mortgages in general).
The table below shows which lenders offer specific HMO mortgages, and just how you are able to make an application for them.
| Lender | Product types | How to apply |
| Aldermore | Two and five-year fixed-rate; variable rate based on Libor | Direct or through brokers |
| Bath Building Society | Five-year fixed-rate; discounted variable rate | Direct or through brokers |
| Foundation Home Loans | Two and five-year fixed-rate | Broker only |
| Gatehouse | Two and five-year fixed-rate | Direct or through brokers |
| Kensington | Two and five-year fixed-rate | Broker only |
| Landbay | Two and five-year fixed-rate; variable rate according to Libor | Broker only |
| Leeds Building Society | Two and five-year fixed-rate | Direct or through brokers |
| LendInvest | Two and five-year fixed-rate | Broker only |
| Precise Mortgages | Two and five-year fixed-rate; variable rate based on Libor | Broker only |
| The Mortgage Works | Two and five-year fixed-rate | Broker only |
| Vida Homeloans | Two and five-year fixed-rate | Broker only |
Best-rate HMO mortgages
Below, we’ve listed the least expensive introductory rates currently available on two and five-year fixed-rate HMO mortgages.
As you can see, the rates from Leeds come out on the top by a significant margin both in categories.
Bear in your mind, however, that you shouldn’t judge deals by initial rate alone, as there might be some limits which make the ‘best’ deals less attractive or unobtainable.
For example, the Leeds two-year fixes below require rental income to cover no less than 140% of the mortgage payments, as the deal from Precise Mortgages allows applications at 125%.
Two-year fixed-rate
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | Maximum LTV |
| Leeds (small HMO) | 2.09% | 4.99% | 5.2% | lb999 | lb500 | 60% |
| Leeds (small HMO) | 2.29% | 4.99% | 5.2% | lb999 | lb500 | 70% |
| Leeds (small HMO) | 2.49% | 4.99% | 5.2% | lb999 | lb500 | 75% |
| Precise Mortgages | 2.79% | 5.99% | 5.5% | lb995 | None | 75% |
Five-year fixed-rate
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback | Maximum LTV |
| Leeds (small HMO) | 2.49% | 5.99% | 5.2% | lb999 | lb500 | 60% |
| Leeds (small HMO) | 2.69% | 5.99% | 4.5% | lb999 | lb500 | 70% |
| The Mortgage Works | 3.44% | 5.24% | 4.9% | 2% of advance | None | 75% |
| Foundation Home Loans | 3.49% | 5.41% | 5.1% | lb125 + 2% of advance | None | 65% |
