Financing and insuring a House in Multiple Occupation

If you are thinking about or are already letting a Home in Multiple Occupation, two things which are vital to get right are the requirements around financing and insuring your investment.

If you have a House in Multiple Occupation, the number of products available to you will be limited because of the perceived increased risk of letting to multiple, unrelated tenants. In terms of mortgage providers, you’ll have access to around half of all Buy to Let lenders, while the insurance market is more niche. Although specialist products have been required for many years, recent legislative changes, particularly over minimum room sizes and mandatory licensing, have had an impact on application criteria, so it’s important you know about the latest rules.

Houses in Multiple Occupation mortgage considerations

While all mortgage lenders have tightened their criteria across the board, if you’re applying for a House in Multiple Occupation product, there are a number of additional considerations you should be aware of before you begin:
 

• The number of rooms. Some HMO lenders will only lend up to a maximum number of rooms. The majority will consider anything up to five bedrooms, but anything bigger may require commercial finance.
• The type of tenant. Some lenders won’t accept students or housing benefit tenants because they perceive additional risk involved.
• The rental valuation. Not every lender will value a House in Multiple Occupation based on the room rental income; instead they may base their assessment on the rental income that would be generated by a ‘standard’ let.
• The interest rate. HMO mortgage rates tend to be higher than standard Buy to Let mortgage products. This is because the HMO mortgage market is less competitive

In terms of the information your lender will ask for, the list is likely to include most or all of the below:

• Confirmation of your experience of being a landlord
• Location of the HMO
• The number of lettable rooms, including room sizes. The new minimum bedroom sizes are:
  • - 6.51 m² for one person over 10 years of age
  • 10.22 m² for two persons over 10 years
  • 4.64 m² for one child under 10 years.

Any room of less than 4.64 m² cannot be used for sleeping in and the measure cannot include any area where the ceiling height is lower than 1.5m.

• Types of tenants (students, professionals, housing association, etc.)
• Management type (landlord or letting agency)
• Whether the HMO needs or will have a licence
• Whether each room will have its own Assured Shorthold Tenancy agreement
• Rental income (proposed or actual) on both a room-by-room and single let basis, which will need to be verified by a surveyor.

Remember also the ‘portfolio lending’ rules that were introduced in September 2017, whereby if you have four or more properties, the total lending across all your mortgaged properties must be no more than 75%. If you fall into the ‘portfolio landlord’ category, make sure you have details of all your other mortgages to hand when you speak to an adviser.

It’s vital you speak to an expert about specialist HMO financing before you agree a purchase, because so much of a lender’s decision on whether to lend is down to the specifics of the accommodation and the prospective tenants. If you haven’t already taken advice, you can contact our partners, Embrace Financial Services, for a free initial consultation to go through everything you need to know.

Specialist House in Multiple Occupation insurance

Any Buy to Let needs specialist insurance, but Houses in Multiple Occupation require even more specific cover. The risk is perceived to be higher for a property that’s let by the room, as the property has shared facilities, there could be cooking in individual bedrooms, there are likely to be more visitors than normal, etc., and so the terms of the policy are different to those for a single-let property.

Importantly, you will need to provide your insurer with details of the HMO licence and do be aware that if you fail to comply with any of the terms of the licence, your insurance may be declared void.

As with any Buy to Let insurance policy, the core cover is for the building – the ‘bricks and mortar’. There are usually then additional items of cover that come as ‘standard’, such as accidental damage and public liability (in case a tenant, contractor or visitor injures themselves in your property). Many policies also include the following, but do check and, if they’re not already in place, it’s worth adding to your policy or taking out separate cover for:

• Malicious damage and theft by tenants.
• Alternative accommodation, in case your tenants need to be re-homed while any necessary remedial works are carried out on the property
• Rent protection, in case any tenant defaults, and legal protection. We offer two very competitive products, via our underwriter, Aviva, and our provider, ARC Legal Assistance – see further details on our website

For Houses in Multiple Occupation in particular, you should also consider cover for:

• Your own contents. With an unfurnished single let, you may only have white goods in the property, but with Houses in Multiple Occupation you’re likely to have furnishings, electrical goods and various other items of décor and you might want to consider insuring those, in case they’re damaged or stolen. (Remember to tell your tenants that they need to arrange their own contents insurance cover.)
• Boiler repair or replacement – boilers tend to suffer much more wear and tear in House in MOs than in other types of let
• Equipment breakdown for your white and other electrical goods
• Glass and locks replacement, in case of any break-ins.

If you’re planning to let to students or Housing Benefit tenants, this is something you must declare and be aware that some insurers may make a small extra charge to cover you. 

At Reeds Rains, we offer a wide range of landlord insurance and our advisers will be happy to provide a quote for House in Multiple Occupation cover, whether you have just one property or are looking for portfolio insurance. Get in touch today via our website.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.