HMO Mortgage & Property Investment Glossary

Short-term funding used to finance the construction or renovation of properties, including HMOs. Typically repaid through refinancing or sale upon completion.

The total cost of constructing or renovating a property, including materials, labor, and professional fees. Essential for development finance applications. Typical components include: structural work (20-30%), internal finishes (15-25%), external works (10-15%), professional fees (10-15%), and contingency (5-10%). Lenders typically require detailed build cost breakdowns and may cap funding at 60-80% of total development costs.

The strategy for repaying development finance, typically through refinancing or selling the completed property.

Switching your mortgage to a new lender or deal, usually to get a better interest rate or to release equity from your property.

Switching to a new mortgage deal with your existing lender at the end of your current deal period, without needing a full remortgage application.

An assessment of your property's value conducted by the new lender during a remortgage application.

A short-term loan used to 'bridge' a funding gap, often for auction purchases or properties needing renovation before a long-term mortgage can be secured.

A planned approach for repaying a bridging loan, typically through refinancing with a long-term mortgage or selling the property.

The duration of a bridging loan, typically ranging from 3 to 18 months, depending on the lender and project.

A specialized mortgage product designed for Houses in Multiple Occupation, typically requiring higher deposits and offering different terms than standard buy-to-let mortgages.

A measure used by lenders to assess whether rental income sufficiently covers mortgage interest payments, typically expressed as a percentage.

An assessment of an HMO property's value, often required by lenders to determine loan amounts and terms.

A limited company set up solely for the purpose of holding property investments, often used for tax efficiency and risk management.

A mortgage taken out by a limited company rather than an individual, often used for property investment to benefit from different tax treatment.

The legal and organizational setup of a limited company, crucial for tax planning and mortgage applications.

An HMO property that is classified as commercial premises, often requiring different planning permission and mortgage products.

A mortgage secured against commercial property, including commercial HMOs, typically with different terms and conditions than residential mortgages.

An assessment of a commercial property's value, often required by lenders to determine loan amounts and terms.

A single mortgage that covers multiple properties, simplifying management and potentially offering better rates for experienced landlords.

A planned approach to building and managing a portfolio of HMO properties, considering factors like diversification, financing, and growth.

The ongoing process of managing multiple properties, including tenant relations, maintenance, and financial oversight.

A property investment strategy involving buying a property, adding value through refurbishment, and refinancing to release capital for further investments.

Funding specifically designed for property refurbishment projects, often with drawdown facilities to release funds as work progresses.

The expenses associated with renovating a property, including materials, labor, and professional fees.

An HMO with 5 or more occupants from 2 or more households, requiring mandatory licensing and often different mortgage products.

Required for all large HMOs (5+ occupants), ensuring the property meets safety and management standards set by local authorities.

An assessment of a large HMO property's value, often required by lenders to determine loan amounts and terms.

A specialist mortgage for UK citizens living and working abroad who wish to invest in UK property like an HMO.

Income earned outside the UK, which may be considered differently by lenders when assessing mortgage applications.

The paperwork required for expat mortgage applications, including proof of income, residency, and property management experience.

A mortgage product designed for borrowers with a poor credit history, often with higher interest rates and stricter terms.

The process of improving a poor credit score to increase chances of mortgage approval and better rates.

The higher deposit required for borrowers with adverse credit, typically 30% or more.

An HMO specifically designed and licensed for student accommodation, often with different management requirements and mortgage products.

The period from September to June, crucial for student HMO planning and management.

An assessment of a student HMO property's value, often required by lenders to determine loan amounts and terms.

A freehold property containing multiple self-contained units, often used for HMO purposes and requiring specific mortgage products.

Ownership of a property and the land it stands on, with no time limit on ownership.

An assessment of a multi-unit freehold property's value, often required by lenders to determine loan amounts and terms.

Someone who is becoming a landlord for the first time, often requiring additional support and specific mortgage products.

Specialized insurance for rental properties, covering risks specific to landlords and often required by mortgage lenders.

The higher deposit required for first-time landlords, typically 30% or more.

A mandatory license required for properties that are Houses in Multiple Occupation (HMO). The license ensures the property meets safety and management standards set by local authorities.

A scheme where local authorities require landlords to obtain a license for all private rented properties in a designated area, not just HMOs.

The process of applying for an HMO license, including submitting property details and management plans to the local authority.

Required when converting a property into an HMO in certain areas. Different from an HMO license and may be needed even if the property is already licensed.

A planning restriction imposed by local councils that removes permitted development rights for converting properties into HMOs, requiring planning permission.

The process of applying for planning permission to convert a property into an HMO, including submitting property details and plans to the local authority.

A legal structure that combines the liability of a partnership with the tax benefits of a limited company, often used for property investment.

A mortgage product specifically designed for Limited Liability Partnerships, often with different terms and requirements than standard mortgages.

The tax implications and obligations of a Limited Liability Partnership, including how profits are taxed and how partners are taxed on their share of profits.

The legal document that outlines the terms and responsibilities of the partnership, including profit sharing, liability, and exit strategies.

A specific type of partner in an LLP who has additional responsibilities for filing accounts, maintaining statutory registers, and acting as the primary contact with Companies House.

A financial metric used by lenders to assess whether a property's rental income can adequately cover mortgage payments. Calculated as annual rental income divided by annual debt service. HMO lenders typically require a DSCR of 1.25-1.45, meaning rental income should be 25-45% higher than mortgage payments.

The process lenders use to assess mortgage affordability by applying higher interest rates (typically 2-3% above the actual rate) to ensure borrowers can still afford payments if rates increase. For HMO mortgages, stress testing also considers void periods and management costs in rental income calculations.

An individual or entity owning four or more mortgaged buy-to-let properties. Portfolio landlords face stricter lending criteria under Prudential Regulation Authority (PRA) rules, including more detailed income verification, portfolio stress testing, and often higher deposit requirements.

Prudential Regulation Authority regulations implemented in 2017 that tightened lending standards for buy-to-let mortgages, particularly for portfolio landlords. These rules require more thorough affordability assessments, stress testing, and verification of rental income and tax obligations.

UK tax legislation that restricts mortgage interest relief for individual landlords to the basic rate of tax (20%). This significantly impacts the profitability of highly leveraged property investments and has driven many landlords to incorporate their property businesses or use limited companies for new purchases.

Tax relief on mortgage interest payments. For individual landlords, this is now restricted to basic rate (20%) under Section 24 rules. Limited companies can still claim full mortgage interest as a business expense against corporation tax, making corporate ownership more attractive for highly leveraged investments.

Tax paid by limited companies on their profits. For property investment companies, the rate is 19% on profits up to £50,000 and 25% above this threshold (as of 2024). Companies can deduct full mortgage interest and other business expenses before calculating taxable profits.

Tax paid by shareholders on dividends received from limited companies. Rates are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Combined with corporation tax, this creates a total tax burden that must be considered when comparing limited company vs personal ownership structures.

The annual rental income after deducting operating expenses, expressed as a percentage of the property value. For HMOs, typical deductions include insurance, management fees, maintenance, void periods, and licensing costs. Provides a more realistic assessment of investment returns than gross yield.

Times when a property or room is empty between tenants, generating no rental income. HMO investments typically factor in 5-15% void allowance depending on location and tenant type. Student HMOs often have seasonal voids during summer months.

Tax paid on the profit when selling an investment property. For individuals, rates are 18% (basic rate) or 24% (higher rate) on residential property gains. Limited companies pay corporation tax rates on capital gains. Various reliefs and allowances may apply.

The change of use from a C3 dwelling house (family home) to a C4 small house in multiple occupation (3-6 unrelated people). This conversion is normally permitted development but may require planning permission in areas with Article 4 directions.

A planning classification meaning 'unique' or 'in its own class'. Large HMOs (7+ unrelated people) are classified as sui generis and always require planning permission for changes of use. These properties have specific planning considerations and often face more restrictive policies.

A significant change in how a property is used that requires planning permission. Converting a family home to a large HMO (7+ people) always constitutes a material change of use, as does any increase beyond 6 unrelated occupants.

Compulsory licensing scheme applying to HMOs with 5+ people from 2+ households across 3+ storeys, or all HMOs with 5+ people in some areas. Introduced nationally in 2018, this requires all qualifying properties to be licensed with local councils.

Optional licensing scheme that councils can introduce to cover HMOs not subject to mandatory licensing, typically smaller HMOs (3-4 people) or those not meeting the storey requirement. Coverage varies significantly between local authorities.

Minimum space, safety, and amenity requirements for HMO properties set by local councils. Typically include minimum room sizes (6.51-10+ sqm), kitchen/bathroom ratios, fire safety measures, and means of escape. Standards vary between authorities.

Minimum space standards for rooms in HMO properties, typically 6.51 square meters for single occupancy and 10.22 square meters for double occupancy. Some councils set higher standards (8-12 sqm). Includes requirements for adequate natural light and ceiling height.

Regulatory Reform (Fire Safety) Order 2005 that places legal responsibility on the 'responsible person' (usually the landlord) to ensure fire safety in HMO properties. Requires fire risk assessments and appropriate fire safety measures.

A systematic evaluation of fire hazards and risks in an HMO property, required under the Fire Safety Order. Must identify fire hazards, people at risk, and evaluate/implement fire safety measures. Should be reviewed regularly and updated when circumstances change.

Requirements for shared facilities in HMO properties, including kitchen and bathroom provision ratios (typically 1 kitchen per 5 people, 1 bathroom per 5 people), storage space, waste disposal, and external amenity space. Standards vary between local authorities.

HMO properties targeted at working professionals rather than students, typically offering higher-quality accommodation, longer tenancies (12+ months), and higher rents per room. Often located in business districts or commuter areas with good transport links.

High-end HMO properties targeting affluent professionals, often featuring ensuite bedrooms, premium furnishings, concierge services, and prime locations. Commands premium rents but requires higher investment and management standards.

Property Technology - digital innovations transforming the property industry, including online property management platforms, digital mortgage applications, virtual viewings, smart home technology, and automated rent collection systems.

Online mortgage application and processing systems that allow borrowers to apply, upload documents, and track progress digitally. Many HMO lenders now offer digital platforms to streamline the traditionally complex buy-to-let mortgage process.

Computer algorithms that estimate property values using data such as recent sales, property characteristics, and market trends. Increasingly used for initial mortgage assessments, though physical valuations are still required for most HMO lending decisions.

Digital platforms that help landlords manage their properties, including tenant communications, rent collection, maintenance tracking, document storage, and financial reporting. Essential tools for managing multiple HMO properties efficiently.

Internet-connected devices and systems that can be remotely controlled and monitored, including smart locks, thermostats, security cameras, and utility monitoring. Increasingly popular in HMO properties for security, energy efficiency, and remote management.

Certificate showing a property's energy efficiency rating from A (most efficient) to G (least efficient). All rental properties must have a minimum EPC rating of E from April 2018, with plans for higher minimum standards in future.

Minimum Energy Efficiency Standards that require private rented properties to have an EPC rating of at least E before they can be let. Properties failing to meet these standards cannot be rented until energy efficiency improvements are made.

Insurance that covers lost rental income due to tenant default, void periods, or legal costs for possession proceedings. Some HMO lenders prefer or require this insurance as additional security for rental income stability.

Arrangements where a company guarantees to pay rent to landlords regardless of occupancy, taking on the management and void risk in exchange for a percentage of rental income. Can provide stable income for mortgage affordability assessments.

Business model where an individual or company rents a property from a landlord and then sublets it (often as an HMO) to generate profit from the rental differential. Requires careful legal structuring and often specialist insurance.

Tax relief available to property businesses on qualifying capital expenditure such as furniture, equipment, and integral features (heating, electrical systems). Can provide significant tax benefits for furnished HMO properties.

Tax allowance allowing businesses to deduct the full cost of qualifying plant and machinery purchases (up to £1 million annually) in the year of purchase. Particularly valuable for property companies furnishing HMO properties.

Security arrangement where multiple properties secure a single loan or multiple loans, meaning each property acts as security for the entire debt. Provides lenders with additional security but can complicate individual property sales.

The percentage of time a property or rooms are occupied by paying tenants. Critical metric for HMO profitability - a 90% occupancy rate means 10% void periods. Professional HMOs typically achieve 85-95% occupancy, student properties 80-90%.

Government-approved schemes that protect tenant deposits in England and Wales. Landlords must protect deposits within 30 days of receipt and provide prescribed information. Failure to comply can result in significant penalties.

Properties occupied by three or more people from more than one household who share facilities such as kitchens, bathrooms, or toilets. Subject to specific licensing, safety, and management requirements that don't apply to single-let properties.