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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 14, 2022

With trends changing over the last few years, we have seen a rise in enquiries from customers wanting mortgage advice on their house in multiple occupation (HMO) property, or from would-be investors looking to buy one for the first time, generally because they’re much more complex from a mortgage perspective than a mainstream mortgage.

Thankfully, we work with some amazing specialist HMO mortgage advisors who can give the best advice from the whole market.

What is an HMO?

An HMO, or a house of multiple occupations, is a property that has been rented out by at least three unrelated people.

To be classed as an HMO property the people renting rooms in the house would share facilities, such as a kitchen or bathroom. But they don’t make up a single household in the way that family relations living together would.

This is the definition provided by the UK government, which classes a household as either a single person or members of the same family living under one roof.

What does HMO property mean?

If a multi-let property is occupied by five or more people or stands at three storeys high, most UK lenders will class it as a large house in multiple occupation.

Some mortgage lenders are reluctant to offer mortgage deal on HMO property, so you may need specialist help to get the right mortgage at the best price.

HMOs have become a popular choice with both tenants and landlords as the rent is often more affordable. Therefore, landlords can often benefit from higher gross yields than those generated by standard buy-to-let properties.

Houses in multiple occupation, however, are not without their challenges as operating one can be hard work due to the time demands they place on landlords, not to mention the higher running costs associated with them.

If you’re wondering whether an HMO mortgage might be a sound investment, you’ve come to the right place.

The advisors we work with can connect you with brokers who are experts in this area and they, in turn, have contacts with the best HMO mortgage lenders in the business.

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Do you need a special mortgage for HMO property?

As we already touched on, some lenders can be reluctant to lend on HMO properties as they deem them to be high-risk investments.

However, there are lenders who are happy to lend on the right HMO proposition. The whole-of-market buy to let brokers we work with are experienced in working with specialist lenders who cater to landlords with HMO property.

Buy-to-let mortgages for HMO properties

Many of the UK’s biggest lenders are unwilling to deal with aspiring HMO borrowers, but there are specialist HMO mortgage lenders out there who may be happy to offer you a buy to let agreement for a multi-let property.

Most HMO mortgage lenders in the UK apply strict lending criteria to these properties. Some impose a cap on the number of bedrooms, while others base their lending decision on whether the borrower has experience as a landlord.

Aspiring HMO landlords should also be aware that some of these properties require a license from the local council.

We’ll now cover these topics in greater detail, but feel free to make an enquiry to discuss them with the expert advisors we work with over the phone. They will compare HMO mortgages on your behalf and connect you with the right broker.

When is a commercial mortgage needed for an HMO?

The majority of the time, a commercial mortgage is not required for an HMO property as a number of buy to let lenders offer favourable rates in this sector. That said, it may be the case that a commercial lender is offering better rates for somebody in your circumstances.

Moreover, there are also situations where a commercial mortgage is a necessity in the HMO sector. This is the case when the property in question is unusual – a pub or guesthouse converted into an HMO, for instance.

A commercial lender would also be required if the property includes a commercial element, such as a downstairs shop, which is listed on the mortgage.

Are there HMO mortgages for limited companies?

In a word, yes! And if you’re set up as a limited company, it may be more tax-efficient to apply for your HMO mortgage through the company.

Not all lenders, specifically those on the high street, cater for limited companies, but the advisors we work with can connect you with a broker that specialises in arranging HMO mortgages under these circumstances.

You can find further information on applying for a mortgage as a limited company here, or alternatively, make an enquiry and an advisor will discuss your limited company HMO mortgage application with you over the phone.

How do you value an HMO property?

When it comes to valuing an HMO, it’s a specialised process and you may benefit from some professional help. If you are unsure you should speak to a surveyor who has experience in the area.

HMOs are valued on a commercial basis and therefore tend to have higher investment value. Multiplying the rental income and the yield is likely to give you a higher value than if you valued the property as bricks and mortar only.

Whether you value you HMO as bricks and mortar or on a commercial basis really depends on your particular circumstance.

For example, a 3-bed property valued at £180,000 as bricks and mortar (valued as a single unit family home), converted to a 4-bed HMO with a total rent of £2,000 PCM / £24,000 a year achieves a yield of 7.5%. Valued as an investment gives the same property valuation of £320,000.

While the investment value of £320,000 is whopping £140,000 better than the bricks and mortar valuation, it is not strictly necessary to value your HMO on a commercial or investment value basis.

A surveyor will look at the area where your HMO is located. If the area is mostly populated by owner-occupiers, there may be less demand for HMO’s which could make it more likely to be valued on bricks and mortar basis.

However, if your HMO is in an article 4 area (decided by the local planning authority and restricts the type of development), is fully compliant with all legislation and already has HMO license it will be more likely to be valued on a commercial basis.

Bear in mind that a surveyor will pay close attention to the compliance of your HMO. If it fails to fit the minimum space requirements or fails to comply with legislation in any other way, this will impact the valuation of the property.

If you’re considering investing in an HMO and are seeking specialist advice, speak to one of the expert brokers we work with.

Make an enquiry for a free, no-obligation chat.

Lending criteria for buy-to-let HMO mortgages

Most HMO mortgage lenders base their eligibility criteria on factors including…

  • The number of rooms the property has
  • Whether the borrower has experience as an HMO landlord
  • Whether the property requires a license from the local council

How many rooms can an HMO have?

Every HMO mortgage specialist will have their own preference on the maximum number of bedrooms the property can have, but most lenders in this sector will go up to five. Some will stretch to more than this, while others list no cap at all, and will only impose one on a case-by-case basis.

It isn’t just about bedrooms, of course. Some providers place a cap on the number of kitchens, with a number of them unwilling to offer mortgages on HMO properties with more than one. Others allow as many as six, and some lenders have no restrictions whatsoever.

At certain lenders, the number of storeys the property has may be an issue. You might find ones who are wary of buildings with more than four, while others are happy to deal with more than that and others have no limits.

Minimum property value

There are also UK lenders who list a minimum property value in their HMO mortgage requirements and this can range between £50,000 and £150,000. However, it is possible to find a provider with no minimum requirement.

Do I need experience to become an HMO landlord?

There are HMO mortgage providers out there who are only willing to deal with established HMO landlords, insisting that the applicant has two or more years’ experience in this capacity. With others, one year will do and a minority even offer HMO mortgages for first-time landlords.

Do I need a license to become an HMO landlord?

If the rental property you own has three or more habitable storeys or is occupied by five or more people from at least two households who share facilities, you must register it with the local authority to obtain a license.

A number of UK lenders tie their HMO mortgage criteria directly into this as some are unwilling to offer unlicensed HMO mortgages.

If you’re in the market for an HMO property which requires a license, but you don’t hold one, there are lenders out there who will give you a limited time frame to apply for one while the application is being processed.

What else affects my eligibility for an HMO mortgage?

Since HMO BTL mortgages are niche, borrowers are limited in terms of the number of UK lenders they can turn to, but the general criteria they use to assess applications is largely the same as for standard buy to let mortgages.

As previously mentioned, most providers’ HMO mortgage lending criteria takes specific variables into account, such as the applicant’s experience and the number of storeys the property has, but many of the same factors relevant to a standard interest-only buy to let application still apply.

They include…

  • The age and personal details of the applicant
  • The applicant’s credit history
  • The applicant’s personal income
  • Whether the borrower is based in the UK

For further information about the general eligibility criteria for interest-only buy to let mortgage applications, make an enquiry and speak to one of the expert advisors we work with, who have a wealth of experience dealing with aspiring buy to let borrowers in the HMO market.

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HMO mortgage rates

Rates for HMO mortgage products are typically higher than for standard buy to lets, but that isn’t to say they’re unfavourable across the board.

Most providers in this niche sector cap the loan to value (LTV) at between 65% and 75%, but it is possible to find lenders who go up to 80%, and a minority who will even offer you an 85% LTV HMO mortgage, under the right circumstances.

All lenders place a cap on the maximum they’re willing to hand over to HMO borrowers, and it generally ranges between £500,000 and £1.5 million. However, there are a select few lenders who will go as high as £2-3million+, and the advisors we work with can connect you with them.

Although buy to let HMO mortgage interest rates can be higher than vanilla residential, depending on the length of the term and other factors, rates can still be surprisingly competitive.

Get in touch and we will connect you to the best broker, who will use their contacts and expertise to find the lender offering the best HMO mortgage rates and the best HMO mortgage deals for somebody in your circumstances.

Who can live in an HMO?

Most HMO landlords typically rent their property out to students or professionals and, these days, the tenants’ demographic makes no difference to most lenders, so long as the investment is viable.

Many of our customers have asked whether they can reside at their HMO alongside the tenants as a live-in landlord. The answer is yes, and your property will only be classed as an HMO if you have more than two non-family lodgers living at your address with you.

If you have an existing mortgage and take in this many tenants, you may have to apply for an HMO license with the local authority, and notify your lender to make sure you aren’t in violation of the terms of your deed.

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Are there secured loans for HMO landlords?

Yes, it may be possible to take out a secured loan against an HMO property you own and hold sufficient equity in, and there are a number of reasons why you might want to do this. Perhaps you need to borrow extra funds but cannot, or do not wish to, remortgage.

What is an HMO secured loan?

Also known as a second charge HMO mortgage, an HMO secured loan is a loan secured against the equity in your HMO property. It basically functions like a second mortgage.

Secured loans are popular with landlords in the buy to let sector because lenders are often more willing to let them borrower higher amounts than they could on a first-charge mortgage, and factors such as bad credit are usually less of a deal-breaker. That said, they still need to hold sufficient equity in the property and pass the lender’s affordability checks.

It’s a similar story with HMO secured loans, but some borrowers might find they are offered a lower loan to value (LTV) ratio than other BTL landlords. Lenders may also be more cautious of adverse credit if your buy to let property is an HMO.

Getting the best rates on a HMO second mortgage

How much you are able to borrow when taking out a second mortgage on your HMO for additional borrowing will largely come down to two things: your affordability based on rental income and the loan to value (LTV) ratio, determined by the amount of equity you have. Other factors such as your credit profile may also be factored in.

Getting the best rates on a further advance HMO mortgage is a case of meeting these eligibility requirements as closely as possible and having access to the entire market. The brokers we work with are whole-of-market and can introduce you to the lender best positioned to offer you a favourable 2nd change HMO mortgage deal if you make an enquiry.

Speak to an expert

If you like anything in this article or you’d like to know more, call us today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in HMO Mortgages.

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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 OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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