HMO's - a warning to Landlords.

Conrad

I've been planning to invest in an HMO for a while now. Slowly getting to a point where we feel comfortable enough to take the plunge. For the record we will offer the highest quality accommodation and service, no stone left unturned, we are not into the 'transient' poor quality HMO tenant market with dangling light bulbs and yellowing net curtains (bad owner bad dog, bad Landlord bad tenant).


A key risk issue we keep coming across is where existing HMO Landlords have the wrong buildings insurance.


Typically they used an ordinary buy to let or even a residential mortgage to purchase the property and then arrange an ordinary buy to let or resi insurance policy. The problem here is those policies WILL NOT pay out if the insurer finds out the property was let as a licensed or unlicensed HMO.


Imagine it; The house burns down, and the adjoining properties also suffer £300k worth of serious damage. The insurer will easily find out the place was let as an HMO. The Landlord faces a £600,000 bill with no insurance, possibly even claims from tenants for personal injury.


Your insurance schedule is sent to your lender to reflect the type of mortgage you have. If you take out HMO buildings insurance on a property with a normal buy to let or resi mortgage, your lender will see you are letting as an HMO because the insurer will send the HMO insurance schedule to your lender which clearly states it's an HMO, thus you will be breaking the terms of your mortgage.




THE ISSUE FOR ME;


I don't want an HMO mortgage, as the terms I've found (quick search) were not so attractive.
I've spoken to 3 HMO LL's I know, none of them has proper HMO insurance, they just take a chance.


Any thoughts?

Dan-Dan

Conrad wrote: »

I've been planning to invest in an HMO for a while now. Slowly getting to a point where we feel comfortable enough to take the plunge.


A key risk issue we keep coming across is where existing HMO Landlords have the wrong buildings insurance.


Typically they used an ordinary buy to let or even a residential mortgage to purchase the property and then arrange an ordinary buy to let or resi insurance policy. The problem here is those policies WILL NOT pay out if the insurer finds out the property was let as a licensed or unlicensed HMO.


Imagine it; The house burns down, and the adjoining properties also suffer £300k worth of serious damage. The insurer will easily find out the place was let as an HMO. The Landlord faces a £600,000 bill with no insurance, possibly even claims from tenants for personal injury.


Your insurance schedule is sent to your lender to reflect the type of mortgage you have. If you take out HMO buildings insurance on a property with a normal buy to let or resi mortgage, your lender will see you are letting as an HMO because the insurer will send the HMO insurance schedule to your lender which clearly states it's an HMO, thus you will be breaking the terms of your mortgage.




THE ISSUE FOR ME;


I don't want an HMO mortgage, as the terms I've found (quick search) were not so attractive.
I've spoken to 3 HMO LL's I know, none of them has proper HMO insurance, they just take a chance.


Any thoughts?

Spend your cash on something else?

agrinnall

So it's not really a warning to LL's, who have already taken the decision to either do things properly or run the risk of not being insured, but to people who live in HMOs or those who own adjoining properties.

Conrad

Dan-Dan wrote: »

Spend your cash on something else?

Dan we have ordinary buy to lets with high yields, but a properly done HMO here will make us a considerably higher yield assuming we get full occupancy (speaking to my 3 mates that already do it, they seem to have full occupancy).


To be clear we run our portfolio like a business for income, not as a long term capital provider as some people do.


On the other hand if we instead buy 2 further ordinary buy to lets, the income is something like 40% less but it will be far less hassle. This is the trade off we are wrestling with.

Conrad

agrinnall wrote: »

So it's not really a warning to LL's, who have already taken the decision to either do things properly or run the risk of not being insured, but to people who live in HMOs or those who own adjoining properties.

It's very much a warning to LL's that have non HMO insurance on an HMO property. They could find themselves liable for vast sums when the insurance fails to pay out (something serious like a fire).


I spoke with an old mate of mine who is an underwriter with Direct Line Landlord insurance about this. He says for serious claims they will investigate the property and easily find out if it was let as rooms, in which case the claim would be forfeited.


Imagine if a tenant had life long injury and the insurance was void, the LL could face a bill of millions.

Mardle

If you are intending to

offer the highest quality accommodation and service, no stone left unturned, we are not into the 'transient' poor quality HMO tenant market with dangling light bulbs and yellowing net curtains (bad owner bad dog, bad Landlord bad tenant).

why wouldn't that include the correct building insurance and HMO mortgage?

If the figures don't stack up then don't do it.

mrstick

Conrad wrote: »

Dan we have ordinary buy to lets with high yields, but a properly done HMO here will make us a considerably higher yield assuming we get full occupancy (speaking to my 3 mates that already do it, they seem to have full occupancy).

Surely it is this that makes it worth the less favourable terms for the HMO mortgage?

silvercar

I thought you worked in the mortgage industry? Surely you can find decent landlord insurance that covers HMOs?

I'm actually wondering what the point of this post was?

I've just bought a property that will be a decent HMO once work has been done to bring it up to standard and my standard BTL insurer had no problem with insuring it. The fact it will be an HMO is way down in one of the tick boxes, so I doubt it would be flashing in red lights on the summary of cover that goes to the lender. In any case HMOs are registered with the council so I don't see how any mortgage lender would have difficulty finding this out.

SuzieSue

silvercar wrote: »

I've just bought a property that will be a decent HMO once work has been done to bring it up to standard and my standard BTL insurer had no problem with insuring it.

Would you mind saying who you are insured with?

G_M

I don't really get it: Whenever you buy insurance, whether for your home, a BTL, your car, travel, whatever, you have to check that the insurance covers you properly.

You might as well advise people going to the USA on holiday not to take out European travel insurance (just because it's cheaper). Or a guy with a Ferarri not to take out car insurance for a Skoda.

Since you say you want to "offer the highest quality accommodation and service, no stone left unturned", get yourself some HMO insurance.....

Landofwood

I don't really understand this thread.

If you can make 40% more with the HMO, do the sums to find out if it's enough to cover the correct insurance and mortgage.

Conrad wrote: »

THE ISSUE FOR ME;


I don't want an HMO mortgage, as the terms I've found (quick search) were not so attractive.
I've spoken to 3 HMO LL's I know, none of them has proper HMO insurance, they just take a chance.


Any thoughts?

I thought I was getting a 'warning for landlords', instead I got a question on whether the OP should risk taking out the wrong mortgage/insurance.