What is a HMO Property & How Do You Finance Them?

Houses in Multiple Occupation (HMO) are usually considered more profitable than standard rental property but what exactly are they and how easy is it to finance them? Jeni Browne, expert buy to let mortgage adviser, explains.

What is an HMO?

A House in Multiple Occupation (HMO) is defined as a property rented out by three or more unrelated individuals (i.e. not a family) that share bathroom or kitchen facilities. To ensure that they meet regulatory standards, they require an HMO Licence from the local authority to operate (more on this later).

Often referred to as a house-share, these shared houses are a popular solution for students and young professionals, as the rent is usually more affordable than studio or small flats. The primary benefit for landlords is that rent from multiple bedsits generate higher rental yields than standard, vanilla buy to let properties.

Average Gross Yields

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021







Vanilla BTL







Data taken from our Buy to Let Index.

Whilst the higher yields are often very attractive for landlords, HMOs can be more challenging to run; attracting higher running costs and taking more time to manage. For this reason, HMOs are not usually a newbie landlords first purchase as they require some buy to let experience be a success (although not always).

HMO Licences

As I’ve mentioned, HMOs require a licence from the local council in which the property is located, which is valid for five years. The legislation around HMO licences has changed over the last five years, but now the general rule is that any property with five or more people from two or more separate households that share facilities requires a licence. However, this depends on the local council, as some smaller properties with fewer tenants can also require a licence. If you’re looking to purchase an HMO, it’s imperative that you check what the policy is for that area with the relevant local authority.

How much do HMO licences cost?

HMO licence fees vary depending on location. Some local councils will charge based on the number of bedrooms the HMO has, while others have a fixed fee; these range from a couple of hundred pounds to over a thousand. So, it’s certainly an additional cost to consider if you’re thinking of purchasing an HMO.

How long do HMO licences take to be issued?

How long it takes a council to issue a licence also varies. When you’re applying for an HMO buy to let mortgage, lenders are mindful of this and often accept proof of application to underwrite the mortgage. However, it’s best not to leave this to the last minute as it could hold the purchase or remortgage process up unnecessarily.

HMO licences do have several legal conditions attached to them:

  • Who manages the HMO? This can be you or your appointed managing agent, but they must be considered ‘fit and proper’ for the job (i.e. no criminal record or breach of landlord laws or codes of practice).
  • Suitability of the property: the property must be fit for the proposed number of occupants, not over-crowded and has the right facilities.
  • Gas Safety Certificate: an updated certificate must be provided to the relevant council every year.
  • Electrical & Fire Safety: appropriate smoke alarms are installed and maintained, and all electrical appliances tested with certificates that can be produced upon request.
  • Bedroom minimum size: the regulations on bedroom size may vary depending on the council, so this is another aspect to consider, especially if you’re converting a property into an HMO.

Individual councils may have other conditions for HMO licences, but you should be informed of all of the requirements when you apply. When required by the local authority, HMO licences are non-negotiable; the penalty for renting a licensable HMO without a licence is a fine of up to £20,000.

Buy to Let Lender HMO Criteria

As HMOs are considered a specialist buy to let investment property type, not all lenders include them in the criteria; but fear not, many do! As with most aspects of lender criteria, what is and isn’t accepted varies from lender to lender. However, here are some general criteria points when it comes to HMOs:

  • Bedrooms: the majority of HMO buy to let lenders accept a maximum of five to six bedrooms in a building. There’s often a misconception that anything larger than this will require a commercial mortgage; however, this is not the case. We have access to specialist lenders who are comfortable with up to 20 bedrooms for one HMO.
  • Tenant type: while HMOs are frequently used as private residence for students, it’s not a given that a lender will include both on the criteria, so it’s always worth checking the details (or ask your broker). While lenders have become much more accepting of different tenancy types (99% now accept tenants on benefits), some have tighter restrictions than others. That said, I would always question how a lender could possibly know who the tenants are likely to be on purchase applications, and how would they enforce the tenant type anyway?

When it comes to valuations, lender methods can differ slightly here too. Some lenders use the traditional surveyor inspection combined with comparing it to like for like properties in the same area. If there aren’t any other HMOs in the area, then the valuation will be based on the price achieved as if it were a single household. The issue with this method is that it doesn’t account for the extra income HMOs generally attract by having multiple rental incomes, and can restrict the amount you can borrow.

Other lenders are more on board with the financial nature of HMOs and will use an ‘investment value’ instead, which considers how much income it will generate.

What’s the Difference Between an HMO and a Multi-Let?

Some lenders prefer to call HMOs which do not require a licence ‘multi-lets’ purely because terms like ‘unlicensed’ have negative connotations. Multi-lets are still rented out to tenants that are not a household (not related) but who share facilities. Usually, lenders who accept HMOs will accept multi-lets and vice versa (though not always) but will value a multi-let as a single dwelling as they don’t benefit from enhanced planning or an HMO licence. 

HMO Mortgages

At the time of writing, around 47% of buy to let lenders offer mortgages for HMOs. As HMO properties have grown in popularity among the buy to let landlord community, more lenders have entered this growing market. Luckily for landlords, the increase in competition in this sector has pushed prices down! There are plenty of purchase and remortgage options for both personal and limited company borrowers too.

HMO Mortgage Rates

As a specialist property type, it’s not a surprise that HMO mortgage rates tend to be higher than their vanilla buy to let counterparts. However, as I’ve said, with an increasing amount of lenders entering this market, pricing is certainly more competitive than it used to be and therefore isn’t eye-wateringly high.

Two-year fixed purchase rates start from 1.37% at 75% LTV, increasing to 1.70% for five-year fixes for individuals. For limited company investors, two-year fixes start from 2.88% at 75% LTV and five-year fixes from 2.99%. Of course, the larger your available deposit, the more competitive these prices become, but there’s a lot available at 75% LTV.*

You can get instant quotes for HMO mortgage rates from our Buy to Let Mortgage Calculator, here. 

HMO Lender Landlord Criteria

The rent, location, property and tenants may fit a buy to let lender criteria, but will you?

Due to the complex nature of HMOs (compared to vanilla property), the majority of buy to let lenders will only offer HMO mortgages to experienced landlords. Now, this doesn’t mean you have to have been a landlord for five years and already have an extensive vanilla portfolio. As always, it varies from lender to lender, but one to two years of previous landlord experience is usually enough. Previous HMO landlord experience will give you access to more options, so make sure to mention it when you speak to a broker!

Some lenders will accept first-time landlords, but this will usually be caveated by requiring you to use a property agent to manage the property. If you’re not sure whether you’ll qualify for an HMO mortgage, our buy to let team will be able to help you find out! We’d need to know (roughly):

  • The number of bedrooms to be let
  • Location
  • Your experience as a landlord (including HMO experience)
  • Whether you’ll be managing the property yourself or using managing agents
  • If the property has or needs a licence
  • Expected or actual rental income
  • If there is one or multiple AST tenancy agreements
  • Types of tenants
  • How much you want to borrow
  • Type of rate you prefer (tracker or fixed)
  • Your credit rating
  • Whether you’ll be investing via your personal name or a limited company

How Long Does an HMO Mortgage Application Take?

Every case is unique, so there’s no set-in-stone, quantitative answer to this. However, in our experience, HMO mortgage applications take a similar amount of time for lenders to process as any other buy to let mortgage. Pre-COVID (and hopefully post-COVID), we’d estimate three to four weeks for a purchase mortgage offer, and then an additional four to six weeks for completion. As it stands at the beginning of 2021, we’re experiencing four to six weeks waits for mortgage offers. We hope for things to return to normal soon as the significant demand on the property market subsides after the stamp duty holiday deadline passes in March.

As I’ve already mentioned, most lenders recognise that requiring to see an HMO licence isn’t always practical (unless you’re remortgaging), and will accept proof that you’ve applied for a licence. In this circumstance, lenders will make it a condition of the mortgage that you are deemed ‘fit and proper’ to run an HMO. If you already have a licence, it may speed the underwriting process up a little.

How to Apply for an HMO Mortgage

Finding the right HMO finance for you can be a tricky business; as you can see, there’s a lot to consider. It certainly doesn’t help that every lender has its own criteria quirk! For help sourcing the most suitable HMO mortgage for you or general HMO finance advice, our experienced buy to let team will be more than happy to help. Call today on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk to get your HMO investment plans going!

*Rates as at 16/11/2021.


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