A guide to commercial mortgages for student HMO accommodation

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A growing property market is rented property for students. Commercial mortgages can help investors fund the purchase or residential property for rental to students.

In the academic year 2016 to 2017, there were 2.32 million students studying in higher education, and this number is expected to rise in 2018. Though not all of them live away from the family home, a large proportion of them do and need accommodation.

There are several types of student accommodation: halls of residence owned by universities or colleges, purpose-built student blocks, flats, and houses of multiple occupation (HMO). Large student blocks are expensive to build and can be above the budget of many smaller investors. Most individual private landlords purchase large HMOs that a group of students share. There are a number of commercial mortgage lenders who will provide loans to purchase an HMO.

The basics of HMO

HMO accommodation is usually leased as a type of Assured Shorthold Tenancies in which if one student leaves, the rest are responsible for paying the whole rent until another student tenant is found. The borrower will normally have to conform to the lender that they will issue this type of tenancy lease, which guarantees payment of the rent.

HMO normally have shared bathrooms and kitchen facilities. Lenders will often be fine if the house has no shared bathroom if there are en-suite bathroom facilities. Most HMOs also have shared communal lounge areas.

What does the borrower need to qualify for a commercial mortgage?

Lenders may have different criteria for approving HMO mortgage applications, but there are some general ones that most of them user. The loan applicant needs to be a homeowner with a high income. Loan applications are welcome from employed, self-employed or retired people as long as they can prove their income.

A clean credit history is required, though one or two minor credit issues can be acceptable. Experience as a landlord is not essential, though lenders like to see a sound business plan that demonstrates the profitability of the investment.

Companies can also apply for commercial mortgages to buy student property.

Types of property

Most lenders will provide loans for properties for up to 20 rooms. There must be a minimum of one kitchen and bathroom. Houses that contain only bedsits or flats with their own kitchen and bathroom facilities do not have to have communal bathroom and kitchen areas.

Many HMOs require a licence from the local authority that is designed to protect tenants and their safety, but a lender may be able to provide a mortgage before an HMO licence has been granted.

Applying for a mortgage

Lenders provide mortgages from 65% to 75% of the value of the house, with the landlords expected to pay a deposit to cover the rest of the purchase price.

If you want to become a student landlord, talk to a broker to discuss all your finance options. At Ascot Mortgages, we have relationships with a wide range of lenders and can match your requirements to the best commercial mortgage deals.

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*Privacy Notice - Any information provided will be treated with confidentiality and will only be accessible within Ascot Mortgages