Changing Buy to Let to HMO Mortgage

Can I convert my Buy to Let mortgage to an HMO mortgage?

Yes, you can. You’ll need to move to a lender that offers HMO products because these are very different from a standard Buy to Let. If your current lender offers these, it might be possible to switch products with them, but most likely you’ll need to remortgage fully to do so.

Do I need permission from my lender to switch from a Buy to Let to an HMO mortgage?

Absolutely. Your lender must approve the conversion before you do the work to convert it. Before you rent it, you’ll need to switch it over to a HMO product, as they are very different products for very different purposes.

HMOs are deemed to be more risky as they are for tenants with different priorities, and the quality of properties tends to be lower. Tenancies are shorter and – we’ve all seen student blocks before – often they’re not kept to a very high standard by tenants.

A lot of refurb work is required to convert properties like single Buy to Lets with families in them. Lenders are very cautious about HMOs and certainly some lenders don’t offer these products.

What are the steps to remortgage from a Buy to Let to an HMO mortgage?

It’s relatively simple – it’s just a remortgage. We pick a lender and a product that’s suitable for your HMO, depending on how many bedrooms it is.

If it’s more than eight rooms, or six with some lenders, it’ll be a large HMO. Less than that, it’ll be a small HMO. That can affect the pricing. Some deem it as commercial if it’s more than 10.

For you, there’s no real difference. It’s a full remortgage with a new lender. It’s the same process – a Decision in Principle, submission, valuations, legals… all the normal steps you’d expect.

The main difference is that you’ll need to check with the local council on whether you’ll need a licence to hold a HMO in that area. Check that first, before you start doing works and heading down a potentially costly road.

Are there extra fees involved in converting from a Buy to Let to an HMO mortgage?

There can be additional costs. Sometimes the arrangement fee with the lender might be higher than you have seen previously with Buy to Let. Valuation fees are higher because the report is slightly more in-depth. It covers sustainability as a HMO, rental likelihood, area and tenant types.

If there are licensing fees with the council, that’s something to factor in. But the other mortgage costs and legal costs should be the same. Any arrangement fee to the lender will most likely be a percentage – like most Buy to Let products these days.

What are the legal requirements for converting a property to an HMO?

Legal requirements vary by location, and it’s likely you’ll need a HMO licence. Check on that, because you can’t let a property without one if your area requires it. If the HMO can have five or more tenants from different households, it will most likely qualify.

You’ll need to meet fire safety regulations and room sizes are important. A room that’s less than 20 square metres can cause problems with some lenders.

In terms of building work, you might need an architect. If you’re doing structural works, you may need building regulations sign-off, depending on what you’re doing.

If your house is already suitable and you’re just going to put locks on doors and turn the kitchen around, it’s probably very little work. A full refurb could be more expensive.

What types of properties are suitable for an HMO mortgage conversion? Does my property need to meet specific criteria for an HMO mortgage?

Technically speaking, any property is suitable for an HMO, as long as you make it suitable. That means locks on bedroom doors, a shared kitchen, shared bathrooms and access through a main front door.

You can’t have some rooms be accessed from the back of the house and some from the front. As long as you’re able to achieve that, it’s suitable to be an HMO.

Room sizes are important – very small rooms could be a problem for some lenders. Under 20 meters squared will be a challenge.

If you’re going to convert some rooms, make sure the layout is sensible because lenders will be looking for saleability in the event of a repossession. That means you shouldn’t do anything to the house that couldn’t be undone relatively easily.

Do I need a deposit to change from a Buy to Let to an HMO mortgage? How much deposit do I need?

If you’re converting a Buy to Let to an HMO, presumably you already own the property, so you won’t need a deposit. You’ll already have equity in the home.

As a Buy to Let, it’s almost certainly going to have 25% equity, at least. You won’t need to put any more money into the deal – we can probably get you a 75% loan-to-value HMO product, depending on the area and loan size.

There obviously will be legal costs, building costs and potentially other professional costs for that conversion.

Do I need an HMO licence to remortgage?

If your property qualifies and is in an area where HMO licences are required, you will absolutely need one. Without that, a lender won’t give you the mortgage.

Technically, you could have a HMO in an area without a licence, if it was an incumbent, but you wouldn’t get away for long. You certainly couldn’t get a mortgage without that licence.

Speak to your local council and check whether you need one. If you need it, apply as soon as possible.

How do interest rates differ between Buy to Let and HMO mortgages?

They do differ and lender choices change as well. Not all Buy to Let lenders will offer HMOs, but all HMO lenders will do Buy to Lets.

The rates for HMOs will be slightly higher than a standard Buy to Let just because there’s a higher risk element for the lender.

The rates are similar to multi-unit freehold blocks, where you might convert a terraced house into an upstairs flat and a downstairs flat, so it becomes multiple units on a freehold. That’s another option people often consider.

Will my mortgage repayments increase if I switch to an HMO mortgage?

It depends on your loan amount and the interest rate. HMOs have higher rates, so you will usually pay more unless you’re paying down the mortgage within this remortgage process, or the property has significantly increased in value.

However, you’re likely to have much greater rental income from the HMO model, so it’s a swings and roundabouts situation.

Can I stay with the same lender when converting to an HMO mortgage?

Some lenders do HMOs, some don’t. Of those that do, some will let you remortgage back to themselves, while others don’t like that. If you had to Buy to Let with them, you couldn’t remortgage back to them with an HMO. You’d have to go to a different lender.

So a lot depends on who you’re currently with – it can be done but not all lenders will accept it.

How long does it take to convert a Buy to Let to an HMO mortgage?

The remortgage process typically takes eight to 12 weeks, so it’s very similar to a Buy to Let. The process from a client’s perspective is virtually identical.

Assuming you’ve got all your documents up front, as with a Buy to Let, it should follow a very similar timeframe.

What happens if I convert my property to an HMO without telling my lender?

Converting your property without telling a lender will breach your mortgage terms, which will lead to penalties or a demand for immediate payback of the mortgage. They can recall the mortgage or repossess if you can’t do it quickly.

There are risks of being blacklisted for mortgage fraud, which will significantly impact your ability to get mortgages and finance in the future. So don’t do it.

How can a broker help here? Is there anything else you’d like to add?

Mortgage brokers can help you with finding the right lender and products, navigating any legal or valuation points that need covering, and packaging the case fully for a lender.

Basically, we make sure your case is presented in the best light, and get things moving as smoothly as we can from start to finish.

Some of the lenders are broker only and you can’t go direct – so there’s that benefit too.

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.