HMOs – what are they and how to 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?

According to the Government website a House in Multiple Occupation (HMO) is defined as:

“A property rented out by at least 3 people who are not from 1 “household” (e.g. a family) but share facilities like the bathroom and kitchen. It’s sometimes called a “house share”.

The government defines a household as either a single person or members of the same family who live together, for example:

  • Couples who are married or living together

  • Step-parents and step-children

  • Relatives or half-relatives (siblings, aunts, uncles, grandparents)

HMOs are a popular choice for both tenants and landlords. For individuals and households the rent is often more affordable. For landlords, gross yields are generally higher than can be generated by standard buy to let property as our Complex Buy to Let Index demonstrates:


Average Gross Yield 


Q2 2018  

  Q3 2018 

 Q4 2018  

 Q1 2019  

 Q2 2019 







Vanilla BTL







Whilst better yields are extremely attractive, operating an HMO can be extremely hard work. Buying and running costs are often higher and the time commitment involved can be considerable. 

Use our Buy to Let Mortgage Calculator to search and filter by HMO products.


Getting an HMO Licence

In order to operate a property as an HMO you might require a licence. Licences are issued by the local council in which the property is situated and are valid for five years. A separate licence is required for each property you run.

From 1 October 2018, mandatory licensing of HMOs was extended to any landlord who lets a property to five or more people, from two separate households, sharing basic amenities. Previously, the scheme was restricted to larger properties of three or more storeys. The change in the law extended the scheme to include many smaller HMOs regardless of the number of storeys.

Read our Guide to Mandatory HMO Licensing

Depending on the location, smaller properties, rented to fewer people may also require a licence. This is what is sometimes referred to as ‘selective licensing’, so it is imperative that you check with your council. Newham Borough council for example has a licensing scheme for all HMOs regardless of size.

You can apply for an HMO licence by postcode using the link below.


Licence fees vary from council to council as does the amount of time it takes to grant a licence – some councils can take many months to process applications.

Legally there are also a number of conditions that are attached to licences:

  • Whoever manages the HMO – either you or your appointed managing agent – must be considered a ‘fit and proper’ person. This means no criminal record and no breach of landlord laws or codes of practice. This is referred to as Part 1 of the process.

  • Landlords must ensure that the property is suitable for the number of occupants, i.e. is big enough and has the right facilities. It’s very important that the property is not overcrowded.

  • Landlords must provide the council with an updated gas safety certificate every year.

  • Landlords must ensure that smoke alarms are installed and maintained, and provide safety certificates for all electrical appliances when requested.

  • Depending on the local council, landlords must ensure that bedrooms (or other rooms used for sleeping) are a certain minimum size.
  • Landlords must comply with the local council's storage and waste disposal scheme.

It’s worth noting that all councils can add other conditions to your licence, such as improving the standard of facilities. You will be informed of all the required conditions when you apply. Should you dispute any of the conditions you can take them up with the Residential Property Tribunal.

The penalty for renting out a licensable HMO without a licence is a fine of up to £20,000.


Keeping the peace

When you have a number of unrelated individuals and/or households living together under one roof you are likely to come across some differences of opinions. It is crucial you set out some “house rules” to stop any conflict. You will also have to consider extra costs such as locks on doors.

Licensed HMO

Finding a lender for a licensed HMO is fairly straightforward although each lender has its own preferences on:

The number of bedrooms: Most lenders offering HMO mortgages will go to five bedrooms. If your HMO is much larger your choice of lender will be restricted to the specialists or the high street banks which will price the borrowing on commercial rather than buy to let terms.

Types of tenant: Lenders are not supposed to discriminate but some lenders steer clear of students or tenants in receipt of benefits because they are perceived to be a higher risk. However, John Heron, managing director of Paragon Mortgages believes that there is “no causational link” between the type of tenant and whether or not the rent is more or less likely to be paid. On purchase applications I would question how a lender could possibly know who the tenants are likely to be and how would they enforce tenant type anyway?

How the property is valued: As you probably know, letting a property to multiple occupants/households usually generates more than rental income than letting to a single household. Some lenders really get this concept and will use the ‘investment value’ when making a lending decision.

Other lenders will only use surveyors that value property on a comparable basis, so if an HMO is located close to other HMOs, an investment value will be given. If, however, a property is the only HMO in the area, the valuation will be based on the price achieved if it were purchased as a single dwelling. This can severely restrict the amount that can be borrowed.


Non-licensed HMOs – also known as multi-lets

Some lenders prefer to call HMOs which do not require a licence ‘multi-lets’ because the terms ‘non-licensed’ or ‘unlicensed’ carry negative connotations which suggest that the landlord is avoiding getting a licence even though one is not actually required.

Most of the lenders that provide finance for licensed HMOs will also finance multi-lets but will value the property as a single dwelling only as it does not benefit from enhanced planning or an HMO licence.


HMO mortgage availability

According to Mortgage Flow, our bespoke buy to let mortgage sourcing system, around a quarter of all products are available on HMO property (both licensed and multi-let) from around 20 different lenders – that’s nearly half of all buy to let lenders. Most products are available on either a purchase or remortgage basis to both individual and limited company borrowers.


HMO rates 

HMO rates are generally higher than their vanilla buy to let counterparts, but this isn’t to say they are all extraordinarily priced. For example, Mortgage Flow is currently showing me a two year fixed rate at 1.49% (4.8% APRC) to 65% LTV and a five year fixed rate at 2.49% (4.5% APRC) to 75% LTV. As you would expect rates are more competitive for borrowers with larger deposits but there are rates available up to 80% LTV.

If you want to do some research yourself, you can use our Buy to Let Mortgage Finder & Calculator to search for HMO rates for both individuals and limited company borrowers but remember that the actual rate you will get will depend very much on your specific circumstances.


Will you qualify for an HMO mortgage?

The rent, property, location and tenants may fit the criteria but will you? Many lenders prefer borrowers to have experience as a landlord before they will consider an applicant for an HMO mortgage. There are only a few lenders that accept borrowers without any landlord experience. Lenders will also want to know whether you intend to manage the property yourself or use an agent.

Most buy to let lenders including those offering HMO mortgages can only be accessed via brokers. If you’re interested do get in touch to talk through the options. Be prepared for me (or my colleagues) to ask you lots and lots of questions; we’ll need as much information as possible to match your circumstances to the right product and lender.

Expect us to ask you about:

  • The number of letting rooms
  • 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 agreements
  • Types of tenants
  • How much you want to borrow
  • Type of rate you prefer (tracker or fixed)
  • Your credit rating
  • Borrowing vehicle (buying personally or using a limited company)


HMO mortgage application processing times

Processing a buy to let mortgage application for an HMO takes roughly the same amount of time as any other application. According to our management information the average from time it takes from opening the case to submitting the application through to completion is currently 96 days. Of course some lenders are faster, some are slower; often it depends upon the complexity of the application.

Crucially, there will be a discussion with most lenders on whether or not you already have a licence for the property. If you don’t but have applied for one, most lenders will make it a condition of the mortgage that you are deemed ‘fit and proper’ to run an HMO. With the exception of remortgage applications, it is not always practical for lenders to request sight of an HMO licence because some councils simply take too long to grant them.

What to do next if you need finance for an HMO

All in all, finding the right finance for an HMO can be a very complex business. The points above are just the main things to consider, all lenders have their own little quirks, so do get in touch to talk through the options that may work for you.

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