Changing Buy To Let to HMO Mortgage
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Changing Buy To Let to HMO Mortgage
Adam Messer talks to us about how to go about switching a Buy to Let mortgage to an HMO (House in Multiple Occupation) mortgage.
Can I convert my Buy to Let mortgage to an HMO mortgage? How does it work?
Convert is probably not the right word. You can’t have a standard Buy to Let mortgage with a lender and then decide to convert it into an HMO. You can convert your property into an HMO, though.
Once that’s done, it’s likely your lender won’t do HMO mortgages, so you would need to go somewhere else. There are plenty of lenders that will do an HMO mortgage on a suitable property. So if you want to convert it into an HMO, you absolutely can. We just need to make sure we’re honest and upfront about your plans with your current and future lender.
Do I need permission from my lender to switch from a Buy to Let to an HMO mortgage?
It’s not so much about permission. They either will or won’t. If you’re with a lender that does HMOs, because there are a few, they may just switch you to an HMO product.
If you’re with one that doesn’t do HMOs, and there are plenty of those, you would need to go somewhere else. You’ve possibly then got a penalty to pay.
But it’s your property and you can do what you like with it. We just need to make sure we’re with the right lender at the right time.
What are the steps to remortgage from a Buy to Let to an HMO?
If you’ve already converted the property into an HMO, that’s fine. We just add up the rent that you will get for each room into a total and take that to an HMO lender.
They’ll send a valuer round to check we’re on the right lines with that valuation figure. If everything’s fine, they’ll process it just the same as any other mortgage.
If you’ve got a property that isn’t an HMO and we want to apply for an HMO mortgage, it’s best to do the conversion first and then swap it over.
It’s perfectly achievable, but it’s best to speak to a mortgage broker before you do anything like that. We can sort it out for you.
Are there extra fees involved in converting from a Buy to Let to an HMO mortgage?
There could be. Perhaps you’re with HSBC with a Buy to Let mortgage, and then you ring them up and tell them you’ve converted it into an HMO. They don’t do HMO mortgages, so we’d have to go somewhere else.
If we’re coming away from HSBC early, we’re going to need to pay their penalty – that can get quite costly. If you’re halfway through a five year fixed rate with a 5% penalty, that can be quite a big fee.
Then we’ve got the fees to set up the new mortgage – your new arrangement fee. So it can be costly if you don’t wait until the end of your fixed period. If you come to the end of your fixed rate and then we swap lenders, that’s perfectly normal. We do that all the time. It’s probably the best time to do it rather than in the middle of the fixed period.
What type of properties are suitable for an HMO mortgage conversion?
I suppose you could convert any property into an HMO. It does help if it’s got a particular layout, as you need a communal area and communal kitchen. You’re going to need bedrooms that are all close to a bathroom – or maybe ones that could have ensuites.
It depends what you’re aiming for. Some properties lend themselves better to HMOs than others, but there are no set criteria. I’ve got people with various properties, detached and semi detached – that doesn’t really matter.
You could speak to an architect to know if a property is going to lend itself well to being an HMO. There’ll be some local authority things you need to consider. Do you need a licence? How many bedrooms has it got? Are there fire alarms and other safety precautions?
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Does my property need to meet specific criteria for an HMO mortgage?
HMO mortgage criteria again depend on your local authority. Whether it needs to be licensed often depends on how many bedrooms it’s got.
Some lenders are perfectly fine with three or four bedrooms all being rented out. Once you reach six or seven, or even up to ten bedrooms, we need to go a bit more specialist. But there are lenders for all of those scenarios.
We just need to go to the right lender based on the property. If you’ve followed the guidelines and rules for your local authority, you shouldn’t have an issue getting a mortgage.
Do I need an HMO licence to remortgage?
It depends on the property and your local authority. An HMO with a certain number of bedrooms will need a licence in most places. If the property requires a licence, you will need that to get the mortgage. The solicitors and lenders will check that’s in place.
A small property, with three bedrooms or so probably won’t need a licence. Larger than that, you probably will.
How does the interest rate differ between Buy to Lets and HMO mortgages?
You’re probably going to be on a slightly higher rate with an HMO. A Buy to Let mortgage will probably be a higher rate than a residential mortgage, and an HMO mortgage will be a little higher than a Buy to Let.
It’s a little more specialist and more expensive, but you make more profit with an HMO. As long as you do it right and the rooms are let – obviously that’s the key.
Will my mortgage repayments increase if I switch to an HMO mortgage?
As above, yes, because the rate will probably be a little bit higher than your traditional Buy to Let mortgage. If you’ve had a Buy to Let and now you’re converting it into an HMO, it will cost a little bit more.
Can I stay with the same lender when converting to an HMO mortgage?
If that lender does HMOs, then yes. If they don’t, no. Ideally, we would need to time things so that you come to the end of your fixed rate and there’s no penalty. But some lenders do both HMOs and normal Buy to Let mortgages.
How long does it take to convert a Buy to Let to an HMO mortgage?
Generally, it’s going to be a new mortgage application, which will take a few weeks. There’s going to be a legal process to go through, swapping from one lender to the next, which will also be a few weeks.
I generally allow four to six weeks for a refinance or remortgage of any description, unless you’re staying with the same lender for a product switch. That could just be a swap, which would be quicker, but that’s potentially an unlikely scenario.
What happens if I convert my property to an HMO without telling my lender?
Essentially, you can do what you like, but I very much suggest you should tell your existing lender. If you don’t tell them and they never know, nothing will happen. But if they find out, they would say you’re in breach of your mortgage contract.
It is technically mortgage fraud – which is to be avoided at all costs, in my professional opinion.
Always tell your lender if you’re going to do anything like that. It’s the same if you decide to rent out the house you live in. You have to ask for permission from your lender to do that.
Most of them will say yes for a certain time and then you have to change the mortgage later on. It’s similar with an HMO. They’re not going to demand their money back tomorrow, but they will say that you shouldn’t be doing that and you need to go somewhere else.
How can a mortgage broker help here?
A mortgage broker is going to know which lenders to go to and which to avoid. Some that are good for HMOs and some are not. A decent broker will get it all sorted out for you so you don’t have to worry.
A mortgage broker is definitely key – the more specialist your scenario gets, the more you need advice.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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