Changing Buy To Let to HMO Mortgage
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Home » Changing Buy To Let to HMO Mortgage
Changing Buy To Let to HMO Mortgage
Can I convert my Buy to Let mortgage to an HMO mortgage?
Yes, you can convert your Buy to Let mortgage to an HMO mortgage. It’s probably helpful for me to clarify the stages you’ll go through to make that happen.
The Buy to Let mortgage you’ll have at the moment will be on a property rented to one household on a tenancy agreement. Those are the standard terms of Buy to Let mortgages.
An HMO, or house in multiple occupation, is defined as a property with three or more bedrooms with shared areas and facilities like a kitchen, bathroom and toilet. It will be rented to three or more separate unrelated individuals or households.
Because HMOs are so different to single unit Buy to Lets, you can’t simply switch one mortgage to the other – you will need to make adaptations to the property. The changes required will vary depending on rules set by the local authority. Usually they require specific room sizes, fire doors and a set number of kitchen facilities per tenant – such as sinks and ovens.
An HMO might also need a bike shed, and there can be specific guidelines on the shared refuse area. Your existing single household tenant will need to move out of the property while these changes are made.
How do I manage the mortgage while the renovations take place?
Technically, the landlord can’t hold a Buy to Let mortgage while the property is vacant and undergoing refurbishment, so usually we’d move you onto a bridging loan during that temporary phase.
The bridging loan pays off your original Buy to Let mortgage. In some cases that same bridging loan lender can fund the renovation to convert the property into an HMO.
Once the works are complete and the tenants are ready to move in, we can source a new long-term HMO mortgage. That new deal pays off or redeems the bridging loan.
In that example, you can see it is possible to move from a Buy to Let mortgage to an HMO mortgage, but the property must be adapted to meet the different criteria of the loans – and the specific finance solutions for the situation.
Do I need permission from my lender to switch from a Buy to Let to an HMO mortgage?
It’s not really about permission from your lender. It’s your property, so you can make whatever plans you like. But you do need to inform the lender about what you’re doing.
As I’ve just explained, switching between a Buy to Let mortgage and an HMO mortgage needs a phased approach and your broker will go through those stages with you.
The key steps are redeeming the initial Buy to Let mortgage and moving you onto a new HMO mortgage once the property is ready. Even if you take out an HMO mortgage with the same lender as the Buy to Let mortgage, you’ll need to complete a new application, as the property will be different.
On the subject of permission, unless your adaptations can be completed under permitted development, you might need your local authority to approve your plans before you can go ahead.
What are the steps to remortgage from a Buy to Let to an HMO?
You’ll need to take out a bridging loan to pay off the original Buy to Let mortgage. You then complete the renovation work to turn the property into an HMO, and take out a new HMO mortgage to pay off the bridging loan. That gives you a long-term finance option for the property in its new state.
Are there extra fees involved in converting from a Buy to Let to an HMO mortgage?
Not really. All the standard product fees in each stage will apply. If you’re on a fixed rate with the current Buy to Let mortgage, there might be an early repayment charge. There’ll be application fees for the bridging loan and the HMO mortgage.
You’ll also need to pay the HMO licence fee to the council before you can apply for the HMO mortgage, and we charge a fee for our service – but you’ll only pay if you’re happy to go ahead with our recommendation.
If the HMO mortgage application is straightforward once the bridging loan is finished, we’ll often discount our fee for that last stage, but it depends on the complexity of the case.
What are the legal requirements for converting a property to an HMO?
You’ll need to at least prove that you’ve applied for an HMO licence from your local authority. Lenders differ on whether you actually have to have one in place or just have applied. Guidelines on the specification for the HMO property itself will be set out by your local council. You can normally find details on their website.
The rules set out the number of toilets, bathrooms and wash basins per occupant, and the size of the dining space located in or close to the kitchen. There will be a set amount of cooking appliances required for the number of occupants. That will often be a cooker with four hob rings, an oven and a grill for every five tenants.
There are also rules around storage and refrigeration for everyone living in the property. There’ll be other conditions like adequate ventilation and heating to avoid condensation, damp and mould, and specifics on fire safety – including fire doors throughout the property.
What type of properties are suitable for an HMO mortgage conversion? Does my property need to meet specific criteria for an HMO mortgage?
There’s no restriction on the type of property that can become an HMO. Size is a factor, as it will need to have a minimum of three bedrooms, but it could be a terraced, semi-detached or detached home, a small block of flats or even an ex-hotel or ex-care home. As long as you meet the criteria laid out by the local council, you can turn it into an HMO.
We’ve already gone over the conditions you need to meet for the property, and you can look up the detailed rules for your area.
Bear in mind the planning rules around changing the purpose of buildings, for example, hotels and care homes to HMOs. You’ll need to consult a planning consultant for those.
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Do I need a deposit to change from a Buy to Let to an HMO mortgage? How much deposit do I need?
Technically, you don’t need a deposit. We covered at the start of the episode that you’ll need to approach the conversion in stages. First you need to make adaptations to the property while your tenants have moved out.
The usual approach is a bridging loan to cover the finance on the property in the short term, and then refinancing to an HMO mortgage when it’s ready. In that situation, you’re just using equity within the property to make the bridging loan work.
For a bridging loan, you can usually get 70% to 75% Loan to Value, which should be covered by the equity – as you’ll have needed a 25% deposit for the Buy to let mortgage in the first place.
Then, the HMO mortgage can be arranged with just a 15% deposit. You should already have that within the property value.
Do I need an HMO licence in place to remortgage to an HMO?
No, you don’t need to hold an HMO licence, but you will definitely have to show that you’ve applied for one with your local council and paid the admin fee.
Some HMO lenders do insist that you’ve got one – there are different policies per lender. Some insist that you’ve got one, some are happy that you’ve just applied.
How does the interest rate differ between Buy to Let and HMO mortgages?
HMO rates are normally a bit higher. Lenders consider HMOs to be riskier than single-unit Buy to Lets, because they need more tenants to meet full occupancy and keep that rental income up.
Also in the event of a repossession, reselling an HMO is harder than a standard Buy to Let, given the adaptations made to it.
Will my mortgage repayments increase if I switch to an HMO mortgage?
It depends how much equity you’ve already got in the property. You’re probably going to be borrowing a bit more. In a like for like on the same Loan to Value (LTV), you’re likely to face an increase, because of the higher rate on an HMO mortgage.
If you’d had additional capital to invest, you could move into a new LTV bracket and maybe avoid a monthly rise. But generally, you will pay a bit more, but you’re going to get more rental income.
Obviously, rates are changing all the time. If you move to a different lender, they might have a cheaper deal available, although it’s unlikely to beat your previous Buy to Let product. Just give us a call. We can talk about your situation and look into the details.
Can I stay with the same lender when converting to an HMO mortgage?
It depends whether your current lender does HMO mortgages, but it’s not a big deal if they don’t. We do our fact-find with you, first of all, then we look at the market and see if your current lender is offering HMO deals.
We then apply on your behalf and take care of all the paperwork. So it’s no problem if you do need to move lenders.
How long does it take to convert a Buy to Let mortgage to an HMO mortgage?
How long’s a piece of string? It’s linked to how much work you need to do to the property to meet the HMO licensing standards. If you need to complete a lot of remodelling, like adding bedrooms, updating the kitchen, creating shared facilities and putting in fire doors throughout, it could be four to six months – especially if you need contractors to do the work.
What happens if I convert my property to an HMO without telling my lender?
Technically, you’re committing mortgage fraud, which is no laughing matter. If you don’t make your lender aware of the change, that could result in fines or even imprisonment – it’s just not worth taking the risk.
If you’re overwhelmed by the process and what’s involved, just get in touch and we’ll talk you through it.
You’ve demonstrated how a mortgage broker can help, but is there anything else you’d like to add?
Where there’s a more involved process, like a Buy to Let conversion, the biggest support we can offer as mortgage advisors is our experience. We help landlords make these changes all the time, whether it’s Buy to Let to HMOs or standard residential to HMO conversions.
We’re really well versed in the lenders that offer HMO mortgage options for each client and we also know a bit about the adaptations you’ll need to make. We can advise you on the process of getting an HMO licence and the timings for everything.
The most critical part of getting an HMO mortgage is the valuation. In most cases, a commercial valuation is the best option. It’s sometimes called an investment valuation or a yield-based valuation, but not all lenders offer these.
You can tap into our knowledge to make sure you’re getting the right solution at every stage of the journey. Just blowing our own trumpet, we actually won the 2024 HMO award for best financial services supplier. That’s national recognition of the skills and expertise that we’ve developed in this sector.
Think of us as here to reduce the hassle and paperwork that you’ll face. We’ve got a really experienced admin team to handle the application on your behalf once it’s been submitted. They make sure everyone involved in the process is on track.
We’ve got access to deals that aren’t available on the high street, so there’s a good chance we could save you money on your HMO mortgage. Just give us a call. We’ll review the situation, give you an idea of costs and explain what you need to do to convert your Buy to Let to an HMO mortgage.
All of that conversation is free with no cost or obligation, so there’s nothing to stop you getting in touch.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Initial Consultations are completely free of charge. There’s no obligation to proceed and our broker fee will only become payable if we proceed to a full application. The precise amount of the fee will depend on your circumstances and will be discussed and agreed with you at the earliest opportunity. Typically, in most cases, our fee will be £495. We charge £595 for bridging and adverse credit cases; and £995 for Later Life Lending.
Mortgage Style Ltd is registered in England and Wales. Registered Number 5743648. Registered Office: Elm Tree Farm Estate, The Sheepway, Portbury, Bristol, BS20 7TF.
Mortgage Style Ltd, trading as Mortgage Style, is an appointed representative of the HL Partnership Limited, which is authorised and regulated by the Financial Conduct Authority.