Getting a Mortgage on a House of Multiple Occupation (HMO)

Everything you need to know about getting a HMO Mortgage and how to secure the best rate

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Home Buy To Let Mortgages Getting A Mortgage On A House Of Multiple Occupation (HMO)
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Jon Nixon

Reviewer: Jon Nixon

Director of Distribution

Updated: February 7, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

February 7, 2024

Houses in Multiple Occupation (HMOs) can be highly profitable investments for landlords who rent out individual rooms or sections to earn more overall income than with a standard buy to let (BTL).  But they come with greater complexities and often require a specific HMO mortgage.

In this article, we’ll explain how HMO mortgages work, the unique criteria sometimes attached to them, and why using a specialist broker will ensure you maximise returns on your HMO investment property.

Can you get a mortgage on an HMO?

Yes. While HMO mortgages are not quite as commonplace as standard buy to let mortgages, there are plenty of UK lenders who offer them. Most borrowers will take out their loan on interest-only terms.

The UK government defines an HMO as “a property rented out by at least 3 people who are not from one ‘household’ (for example a family) but share facilities like the bathroom and kitchen.” Each rented room usually has its own tenancy agreement.

What rates to expect

Take a look at our table below to get an idea of the current interest rates available for HMO mortgages.

Lender Product Details
Frosted Rates Image

Looking for more rates and deals?

We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.

Last updated May 2024

Please note that the above rates were accurate at the time of writing, but are always subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

As with all mortgage types, having a larger deposit will often result in more favourable rates. Lenders offering the best rates typically do so only to borrowers who apply via a broker.

 

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How to get an HMO mortgage

If you’ve decided that now is the right time to enter the HMO landlord sector, there are some simple steps you can take to make the process a lot more straightforward. First, make an enquiry with us and we’ll arrange for a HMO specialist advisor to contact you who can help with:

  • Establishing what the HMO regulations are in the area you’re looking to buy ( large HMOs – with five or more tenants from more than one household – will require an HMO licence from the local authority. Once granted, an HMO licence is valid for five years in England and Wales – different rules apply in Scotland and Northern Ireland. It’s important to note the licence is issued for a property, not a landlord. A licence generally costs around £500 – £1000 but can be more. Your broker will be able to discuss this with you in more depth, and assist with getting the correct license required.)
  • Creating a business plan required by mortgage lenders for these types of properties
  • Finding the best mortgage lenders who have previous experience with HMOs and assist with submitting your application

Lending criteria for these properties

Lending criteria differs significantly from one lender to the next for HMO buy-to-let mortgages. In addition to the providers’ standard eligibility factors such as age and credit history, they typically have criteria relating to:

  • Experience as a landlord – Most providers will only approve HMO mortgages for people with at least two years of landlord experience. This is because of the additional challenges of managing an HMO. With that said, there are a handful of lenders who will offer them to first time landlords.
  • Management arrangements – There are lenders who will only approve an HMO mortgage if the property will be managed by a letting agent rather than the landlord themselves. For inexperienced landlords, this is often a condition of the loan.
  • HMO location – There are two main issues here. Firstly, lenders will need to be satisfied that the location has an adequate rental market for this type of property. For example, a city centre will usually be preferable to a rural village. There are also lenders who only lend in certain postcodes.
  • Number of storeys in the building – Some lenders cap the number of storeys a building can have (typically at four or five), while others place no limit on this.
  • Number of bedrooms – Again, lenders have different criteria here. There are those who limit the number of bedrooms to four and others who have no maximum. It is not always the case that each room houses just one tenant. Provided the area of the room meets local authority regulations, there could be more than one person on a single tenancy. You will need to also check that your lender accepts this.
  • Number of kitchens – Not all lenders limit the number of kitchens, but some do.
  • Tenants – You may be asked what type of tenant you will be trying to attract. Young professionals, for example, are considered to bring fewer problems than students.
  • HMO licence – Some lenders insist you have a licence even if one is not compulsory. Others will not lend on one for which a licence is mandatory. We’ll explain more about why and when you need a licence later.

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What size of mortgage can you get?

This will depend on how much rental income the property can generate. You will usually need to prove that the rental income from the property will cover at least 125% of the mortgage payments. With some lenders this will be higher. This is to ensure you can continue to meet your contractual payments during void periods, if repairs are required or if rates increase.

Most lenders stipulate a maximum loan to value (LTV) for an HMO buy-to-let mortgage between 65%-75%,  but there are a few who will consider 85% in certain circumstances.

Some mortgage providers amend their LTV based on the value of the loan. For example:

  • £1 million loan = LTV capped at 75%
  • £1.5 million loan = LTV capped at 70%

But not all valuations are based on the value of the bricks and mortar. Some lenders will value the HMO based on its potential rental yield (i.e. its business potential) rather than its market valuation.

HMO Mortgage Calculator

Our HMO mortgage calculator can show how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.

Enter the value of the rental property here
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A deposit of at least 25%-35% is usually required for a HMO mortgage
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Most lenders will require a deposit of at least 25%-35%
Deposit must be less than the property value
Enter the anticipated monthly rent here
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Enter the mortgage rate, 5.5% is a typical rate currently but this can vary
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Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
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Borrowing

Loan to Value ratio (LTV):

Most lenders won't offer HMO mortgages over a LTV of 75%.

Interest Cover Ratio (ICR):

Most lenders require rental income to be at least 125% of the interest repayments for a HMO mortgage.

Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.

Which lenders offer this type of mortgage?

There are plenty of options when it comes to getting an HMO buy-to-let mortgage, although you will usually need to approach a specialist lender.

Mortgage providers for this property type include…

  • Aldermore
  • Leeds Building Society
  • Landbay
  • Skipton Building Society

That said, there are high street lenders, for example Barclays, who offer this type of mortgage.

While lots of mainstream providers don’t offer these types of loans, across the UK there are almost as many lenders that do lend on HMOs as there are that don’t.

Calculate your rental yield

Use our calculator below to work out the potential rental yield for the property you’re looking to buy:

Rental Yield Calculator

This calculator will show you the rental yield on your buy-to-let property using either the original purchase price, plus associated costs, or the current value. All you need to do is choose which option you want to base your calculation on and your monthly rental premiums.

Input either the original property purchase price or current value to work out the rental yield.
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Gross Rental Yield:

Net Rental Yield:

Now you've worked out what your current rental yield is, why not speak to a broker to see what buy-to-let mortgage/remortgage opportunities are available? With their expertise in this market they'll be able to identify a range of new deals which could reduce your mortgage payments and, as a result, improve your overall rental yield.

Options for first-time landlords

As a first-time landlord, you will have fewer borrowing options, but it’s by no means impossible to get approved. Provided you have the right deposit amount, can prove affordability and have a strong business plan, there is no reason you shouldn’t be approved.

Some people are even investing in HMO properties as their first ever property purchase. This suits young people living with their parents who want to get on the property ladder and earn an additional income.

This type of borrower will face even greater restrictions in finding the right lender, but it can be done. You will usually need a minimum of 35% deposit and can expect to pay rates in excess of 5%. Applying through a broker who specialises in HMO mortgages is also recommended.

Getting a commercial HMO mortgage

If the HMO property is one where commercial business and living arrangements meet, you will need a commercial HMO mortgage. If your building does not fall within any kind of trading or commercial activity, you might be able to look at straightforward buy-to-let mortgages instead.

Examples of properties

Properties such as pubs with living space for occupants, B&B guesthouses, student accommodation, and mother and baby units.

If you have bought a commercial space and intend to convert it into HMO, this would fall in this bracket, or indeed converting a HMO into a family home. Really it is at each lenders’ discretion to determine what falls within this product’s remit, so it is worth speaking to a broker first to get a clearer picture on your position.

  • You will need to meet the standard criteria for a business mortgage, which you can find in full in our complete guide to commercial mortgages.
  • Additionally, your property will need to meet specific requirements to qualify as an HMO – Firstly, it will need to include accommodation space that non-family members can rent and share facilities, such as a bathroom or kitchen.
  • Some lenders might also impose a cap on the number of accommodation spaces the property can have and may reconsider their lending decision if the property does not have a licence from the local council

Eligibility criteria

  • You will need to meet the standard criteria for a business mortgage, which you can find in full in our complete guide to commercial mortgages.
  • Additionally, your property will need to meet specific requirements to qualify as an HMO – Firstly, it will need to include accommodation space that non-family members can rent and share facilities, such as a bathroom or kitchen.
  • Some lenders might also impose a cap on the number of accommodation spaces the property can have and may reconsider their lending decision if the property does not have a licence from the local council.

Lenders

Specialist financiers who provide these types of mortgages include Landbay, Precise Mortgages, Shawbrook Bank and The Mortgage Lender, among others. Approaching directly though is not recommended as you might miss out on a better offer elsewhere.

Can you use a portfolio mortgage to buy multiple HMOs?

While each lender will have their own rules, in theory, it is a possibility that you could add HMOs to your portfolio mortgage. This is a fairly standard practice for landlords and investors, and portfolio buyers usually go through commercial loans rather than HMO products. You can add HMOs to a mixture of other properties in your portfolio too, including semi-commercial and buy-to-let buildings.

Get matched with a specialist HMO mortgage broker

HMO mortgages are a complicated area of lending that demand expert knowledge and each lender has their own strict criteria. Applying without the advice of an expert may well see you rejected on a technicality simply because you approach the wrong lender.

We work with expert HMO mortgage advisors that understand the industry and know which lenders will approve a loan in any given set of circumstances. Our broker matching service will assess your situation and then pair you up with the most appropriate broker based on knowledge and experience.

Call today on 0808 189 2301 or enquire online to get matched with your ideal broker.

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FAQs

Yes. And in many cases, there are tax benefits to doing so. Speaking to a broker will help you decide whether this is the right move for you, but before you get started, you can read more on this topic in our guide to limited company buy-to-let mortgages.

A buy to let accommodates a single household on one tenancy, whereas an HMO has separate tenancy agreement for each household. There is a clear distinction between the two in the eyes of mortgage providers, and it’s important you know the difference to ensure you remain compliant.

Yes, although commercial mortgages are not usually necessary for an HMO, unless it is for an unusual property like a pub or a doctors surgery, or the property contains a commercial element like a shop. But it is wise to explore this as an option, just in case that’s where the best rates lie.

As HMO mortgages have become more popular, some commercial buy to let lenders have entered the market. Some of these will value the HMO based on its potential rental yield (i.e. its business potential) rather than its market valuation.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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