Changing Buy to Let to HMO Mortgage

Hello, and on this episode of the Mortgage and Protection podcast, we have Scott here from Properties to explain how changing a Biterlet to an HMO mortgage works. It's great to chat with you as always, Scott. How's it all going? Yes, very well, thank you. Yeah, not too bad. Good, good. I'm glad to hear that. Well, as you know, we've got a list of frequently googled questions here, so let's get straight into them. And of course, first of all, would like to know, can I convert my Biterlet mortgage to an HMO mortgage? Yes, you can. You'll need to remortgage to a lender that offers HMO products because the products are very different from a standard Biterlet. So if your current lender offers it, it might be possible to switch the product with them, but most likely you'll need to

remortgage fully to do so. Right, okay. There we go. So that explains that. And actually with that in mind, it leads us on to the next question. Do I need permission from my lender to switch from a Biterlet to an HMO mortgage? Absolutely. Your lender must approve the conversion before you start, before you do the works to convert it, and before you rent it, absolutely. You'll need to switch it over to a HMO product. The reason being is that they are very different products for very different purposes. HMOs are deemed to be more risky. You're going to have different types of tenants in there. The quality of the properties tends to be lower. Tenancies are shorter, and tenants – we've all seen student blocks and things before – they're not kept to a very high

standard by the tenants. So a lot of re-fab work is required versus properties like single Biterlets with families in them. So lenders are very cautious about HMOs, and certainly some lenders will offer those products. Right, okay. Which makes sense there and something to bear in mind. So let's move on then. People would like to know what are the steps to remortgage from a Biterlet to an HMO mortgage? So yes, what's the process here? It's relatively simple. It's simply a remortgage. We just 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, six rooms for some lenders, it'll be a large HMO. If it's less than that, it'll be a small HMO. That can affect the pricing with some lenders. Some will deem it

to be commercial if it's more than ten. But really for you, no real difference. It's a full remortgage with a new lender. So the same process is decision of principles, submission, valuations, beagles, all the normal steps you'd expect. The difference being is you'll need to check with the local council whether you'll need a license to be a HMO, to hold a HMO in that area. So just check with your local council first before you start doing works and planning down a road that might be costly. Okay. So thank you for breaking all of that down there then. Hopefully that's clear. And again, with that in mind, are there extra fees involved in converting from a buy to let to an HMO mortgage? What do we need to know here?

There can be additional costs. Sometimes the arrangement fee with a lender might be higher than some of the buy to let you've seen previously. Valuation fees are higher because the valuation report is slightly more in depth. It covers off sustainability as a HMO, rental likelihood, area tenant types of stuff. So the valuation will be slightly more expensive. If there's licensing fees for council, that's a fee to factor in. But the other mortgage costs will be the same. The legal costs should be the same and any arrangement fee to the lender. So it will be most likely be a percentage like most of the buy to let products you see these days. Okay. So that's good news there, but it's useful to know the fees costs,

isn't it, in advance there. So let's move on to this question. I'm not sure if you've got anything else to add here. So what are the legal requirements for converting a property to an HMO? Legal requirements vary by location. So typically you'll need a HMO license. It's likely you'll need a HMO license. So obviously check for that because you can't let it without one if your area requires it. If it has five more tenants from different households, it will most likely qualify. So check with your council. As a HMO, you'll need to meet fire safety regulations. Room sizes are important. If you've got a room less than 20 square meters, that can cause problems for some lenders and the general costs for building

costs. So you might need to get an architect team. If you're doing structural works, you might need to have building regulations and build a sign off for various things, depending on how much work you're doing. If your house is already kind of suitable for it and you're just going to slap locks on doors and turn to the kitchen around, probably very little work. If you've got to do a full refurb, it could be more expensive. Right. Okay. So it really does depend on the factors involved, the variables there, but again, points to bear in mind when it comes to that. So let's move on to the next two questions combined. So what type of properties are suitable for an HMO mortgage conversion? Does my property

need to meet specific criteria for an HMO mortgage? You've talked a little bit about this already, haven't you? Yeah. So technically speaking, any property is suitable for HMO as long as you make it suitable to be an HMO, which would be locks on doors, shared kitchen, shared bathrooms, access through a main front door, not access through different doors. So not having some rooms access from the back of the house, some from the front of the house, the house needs to be a single house, just with locks on doors and shared facilities. So as long as you're able to achieve that, it's suitable to be HMO. I would caveat that with room sizes are important. If you've got very small room sizes, that could be a problem for some lenders. So under 20

meters squared will be a problem. And if you're going to convert some of these rooms down, just try and make sure the layout is sensible because the lenders will be looking for saleability in the event of a repossession. So don't do it into the house that couldn't be undone relatively easily would be another tip, I think. Yes, an important point there to note actually. Thank you for that. Let's continue on. So let's look at these two questions combined. So do I need a deposit to change from a buy to let to an HMO mortgage? And if so, how much deposit do I need to do this? So if you're converting a buy to let to a HMO, presumably you're already owning the property, right? So you won't need a deposit,

you already have equity in the home. As a buy to let it's almost certainly going to have 25% equity at least anyway. No, you won't need to put any more money into the deal because we can probably get you a 75% loan to value HMO product, depending on the area and loan size. So no, you shouldn't need to put any more money into the deal other than obviously legal costs, building costs if there are any professional costs for that conversion. Okay, so that answers that there. That's clear. So let's move on. There's lots of questions, isn't there here, Scott? So I think you've answered this one already, actually. Do I need an HMO license to remortgage just to confirm there? If your property qualifies and is in an area that HMO

licenses are required, then you absolutely need one from mortgage lender to lend to you. Without that, they won't give you the mortgage. Could you technically have a HMO in an area without a license? Is it that it was that encumbered? Yes, you wouldn't get away for very long, I don't think, but you certainly couldn't mortgage without that license. Absolutely speak to your local council, check whether you do need one. If you need it, apply for it and get it as soon as possible. Okay, so again, another important point there to take away from the episode. Okay, so we're getting through these questions now. The next one here asks, how does the interest rate differ between Bitalette and HMO mortgages? Do

they differ? Yes, they do. The lender choices change as well. So not all Bitalette lenders offer HMOs, but all HMO lenders will offer Bitalettes so that you've got a tier of lenders, I suppose is one way of thinking of it. The rates for HMOs will be slightly higher than the standard Bitalette, just because there's a higher risk element for the lender. The rates are similar to multi-unit freehold blocks, which are if you convert maybe a terraced house into an upstairs flat and a downstairs flat instead of one home, becomes multiple units on a freehold. So that's another option that people tend to look at if HMOs and multi-units are kind of there, they're appetites. Rates for those tend to be very

similar, if not the same. Right, okay, brilliant. Well, thank you for explaining that then when it comes to the rates. Now people would like to know as well, 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 unless you're paying down the mortgage in this free mortgage process, or unless the property has significantly increased in value, so your loan to value drops, then yes, you will most likely pay more per month than you're paying on a single Bitalette mortgage. However, you're likely to have much greater rental income from the HMO model. So swings around about. Right, okay, there we go. So we've got three or four

questions left for this episode. So moving on to this one. And again, we might have covered this or a similar question earlier on. Can I stay with the same lender when converting to an HMO mortgage? So some lenders offer HMOs, some don't. Those that do, some of them will let you remortgage back to themselves. Some don't like to be remortgage back to you. So you either stay with them on a product transfer, which wouldn't work if you have a Bitalette with them. You couldn't remortgage back to them with a HMO, so you'd have to go to a different lender. So depends who you're currently with, it can be done, but not all lenders will accept it. Okay, so there we go. Something to bear in mind again there. Now, we've talked a lot about the

process, haven't we, of doing this? But how long does it take to convert a Bitalette to an HMO mortgage then? Is there a time frame here? The remortgage process typically takes eight to 12 weeks, very similar to a Bitalette to be honest with you, because the process from a client's perspective is virtually identical. It is a decision of principle, a full mortgage application, valuations, offer and legal. Assuming you've got all your documents up front like you have to do for a Bitalette, it should follow a very similar time frame. Okay, so that's good news there. There we go. Now, what happens if I convert my property to an HMO without telling my lender? So converting your property without telling a

lender will most likely, almost certainly, breach your mortgage terms, which will lead to penalties, immediate demand for payment back of the mortgage, they will recall the mortgage, repossessing you can't do quickly. There's risks of being kind of blacklisted for mortgage fraud. If your intention was that they could kind of think your intention was always to get a Bitalette from 30 to an HMO, it's mortgage fraud, significantly impact your ability to get mortgages and finance in the future. So don't do it. There we go. You're being told. Yes, let's swiftly move on then. So I mean, just lastly, you've demonstrated this already, Scott, but how can a broker help here? Is there anything else you'd like to add?

mortgage brokers, as we usually say, you know, can help you with finding the right lender for right products, navigating any legal or valuation points that need to be covered off, packaging the case fully for a lender, basically making sure your case is presented in the best light and it's as smooth as we can make it from start to finish. And some of the lenders are broker only. So you won't go to go directly. So brokers obviously have that benefit too. Right. Okay, there we go. Well, that's brilliant. Thank you for that, Scott. That's been really thorough there. So hopefully, that's proved useful to anyone listening to this. And I'm sure we'll catch you on another episode scene. Excellent. Thank you very much.

Please note 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.