Contractors' Questions: How much deposit will a HMO buy-to-let require?

Contractor’s Question: I'm looking at purchasing a 3-bedroom house to let as a HMO (House in Multiple Occupation), at the end of the year. I’m a contractor in the banking industry earning £475 a day and am particularly keen to know what the minimum deposit percentage would be. I'm aiming for 10% deposit on a £400,000 property.

Expert’s Answer: Historically, lenders have asked for larger deposits than just 10% on HMOs. But there are now a number of specialist lenders in the market who’ll let you ‘gear up,’ provided you’re willing to pay a higher interest rate plus a typically 20% deposit for new landlords, or 15% for those who own one or more buy-to-let already.

Given that you have time on your side, I’d recommend you take independent tax, legal and mortgage advice now so you can start preparing for the purchase, as HMOs can be more complex than a traditional buy-to-let.

On the tax front, there is a raft of tax changes which will affect buy-to-let from April 2017 so it may be prudent to make your purchase through a company, whether you opt for a HMO or traditional buy-to-let. However, you should discuss this with a mortgage and tax adviser first.

Some of your legal obligations as a HMO landlord may differ compared to a traditional buy-to-let also. For example, you may need a licence from the local council if you have a certain number of lettable rooms and this could cause you to comply with various other regulations, such as commercial building regulations.

Although this is unlikely to change our view of you purchasing an HMO, it may help refine your property search, or simply help you to make an informed decision from the outset when viewing properties.

Lastly, but by no means least, it’s crucial you understand your mortgage options and the parameters that will be set by the lender. A good mortgage adviser will also work with your accountant and solicitor to tie the whole deal together for you.

The expert was Luke Somerset of IFAs ContractorMoney.