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HMO Mortgage Adviser and Broker

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

Houses in Multiple Occupation (HMO) are usually considered more profitable than standard rental properties, but what exactly are they, and how easy is it to finance them?

What is an HMO?

A House of Multiple Occupation (HMO) is defined as a property where three or more occupants share bathroom or kitchen facilities, and are unrelated. To ensure that they meet regulatory standards, properties require a specific HMO licence for operation from the local authority.

Often referred to as a house-share, these homes are a popular solution for students and young professionals, where rent is typically more affordable than a studio or small flat. Property investors and landlords also benefit from owning an HMO, as rents from multiple bedsits usually produce higher rental yields than a stand buy to let.

Average Gross Yields

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022







Vanilla BTL







Data taken from our Buy to Let Index.

Lenders typically prefer to see a more experienced landlord when reviewing an HMO application. This is because, despite the attractive yields on offer, this type of complex property demands more time for management and will also incur higher running costs.

HMO Licences

HMOs require a licence from the local council in which the property is located, valid for five years. It’s important to inquire about the policy for your area of interest with the relevant local authority. While the general rule involves properties with five or more occupants, there are smaller properties with fewer tenants that can also require a licence. As it varies dependent on the area, getting all the information in advance will put you in the best position for application.

How much do HMO licences cost?

The costs associated with gaining an HMO licence will vary depending on location. Some councils will charge based on the number of bedrooms in a property, and others will have a fixed fee of anywhere between a couple of hundred pounds to over a thousand.

How long do HMO licences take to be issued?

Lenders will be well aware of the time it takes for a licence to be issued and, therefore, may accept proof of application during the underwriting of the mortgage. Despite this, being well prepared in advance will prevent any unnecessary hold-ups at this stage.

Some legal conditions associated with HMO licences include:

  • Someone must be deemed as ‘Fit and Proper’ for the role of managing the HMO (i.e., no criminal record or breach of landlord laws or codes of practice)
  • The property must be suitable and fit for purpose and the proposed number of applicants (i.e., the right facilities and not over-crowded)
  • An up to date Gas Safety Certificate, ready to provide to the relevant council on an annual basis
  • Appropriate smoke alarms installed and maintained, and all electrical appliances tested with certificates that can be produced upon request.
  • The bedrooms must meet the minimum size, these regulations may vary depending on the council. (This is important to be aware of when considering 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 a complex property type, more risk-averse lenders won’t be willing to offer to these cases, and those that do will undoubtedly each have their own individual criteria. However, here are some general points when it comes to HMOs:

  • Bedrooms: Most lenders accept a maximum of five to six bedrooms for one property. 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 residences 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, some have tighter restrictions than others.

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. However, this method doesn’t account for the extra income HMOs generally attract by having multiple rental incomes, limiting the amount you can borrow.


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

Multi lets are much like HMOs in that they are rented out to unrelated tenants that share communal facilities within the properties; however, the main difference is they are unlicensed.

HMO Mortgage Availability and Rates

At the time of writing, 27 lenders offer HMO mortgages to Individual applicants, and 23 to Limited Companies. 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. Luckily for landlords, the increase in competition in this sector has made rates more competitive, starting from 1.64% for individuals, and from 2.69% for Limited Companies.*

HMO Lender Landlord Criteria 

Due to the complex nature of HMOs, the majority of buy to let lenders will only offer to experienced landlords. As always, criteria vary from lender to lender, but one to two years of previous landlord experience is typically sufficient.

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!

Some useful details that will help us to progress your application quicker are:

  • 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?

Whilst every case will differ, generally speaking, HMO mortgage applications take a similar amount of time for lenders to process as any other buy to let mortgage. Pre-pandemic, we’d estimate three to four weeks for a purchase mortgage offer and then an additional four to six weeks for completion.

Lenders may accept evidence of an application for an HMO licence in lieu of the actual licence itself, as this can take more time and isn’t always practical. As such, you may be deemed as ‘fit and proper’ to run an HMO on the condition of having the licence. However, if at all possible, having the licence readily available will facilitate the underwriting process at the application stage.

How to Apply for an HMO Mortgage

Finding the right HMO finance for you can be tricky, and there’s a lot to consider, especially with each lender varying on criteria requirements. For help sourcing the most suitable HMO mortgage for you or general property finance advice, our experienced buy to let team will be more than happy to help. Call today on 0345 345 6788 or email to get your HMO investment plans going!

*Rates as at 05/05/2022.


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