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HMO mortgages (also known as “House in Multiple Occupation Mortgages”) are designed to allow you to purchase a property in order to rent it to multiple occupants.
Whether you own a single property, a large multi-property portfolio or anything in between, we will get you the very best deal available…
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At Commercial Trust we have a panel of over 80 UK based lenders. We will find you the very best rate for your HMO mortgage that they have to offer…
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Every HMO buy to let mortgage lender will have their own specific set of criteria; the summary below is a general guide.
All of the above is subject to each HMO mortgage lender’s own criteria.
Houses/Homes in Multiple Occupation (HMO’s) can present a great opportunity for landlords because properties of this type commonly offer a higher than average rental yield compared with standard buy to lets.
HMO’s can require more work to maintain and there can be more red tape, than for other types of buy to let. Familiarise yourself with your responsibilities and ensure you are prepared to undertake the work involved, before you invest.
You should also consider the opinion of a valuer, who represents the lender and will report back on whether or not there is a business case for an HMO property.
This will take into account the local area and property types. The valuer will ask if there is market demand for an HMO property? Is the market saturated? This will be fed back to the lender, who will make a decision on buy to let lending.
HMO and Multi-Unit Block properties are both owned (either outright or with a mortgage) by the land-owner. They both offer accommodation to different tenant units.
But, a multi-unit block has no shared living facilities. Each unit will have a front door, behind which are kitchen facilities, a bathroom and living space (whether that is separate lounge, dining and bedroom space, or a bedsit, where one space combines bedroom, lounge and kitchen facilities).
If a multi-unit block does not share utilities, the units could, hypothetically, be split into leasehold titles and sold separately. You couldn’t, however, sell a bedroom in an HMO under a separate title, as it would lack all the facilities required.
HMOs and multi-unit blocks are specialist property types. Lending for each reflects the similar way they are occupied by multiple tenant units. If a lender offers HMO mortgages, they commonly also lend on multi-unit blocks.
One important consideration is the process of valuing a multi-unit block, which is different to an HMO.
When a lender sends a valuer to assess this type of property, they commonly want to understand the value of the whole property and the value of each unit, if it were let under separate leasehold titles.
A valuation essentially demonstrates that if the property had to be sold, it would make the money to cover the outstanding mortgage amount. Where this assessment is on a multi-unit block, the lender may want to be sure that – were the property to be sold as separate leasehold properties – each unit still fits with its criteria.
If one unit falls outside of the lender’s criteria, under this hypothetical scenario, the whole mortgage application may be declined.
Similarly, some multi-unit blocks share utilities (e.g. water supply), which would prevent the units from being split, without renovation. This could also affect a mortgage application, with some lenders.
The opposite doesn’t apply to an HMO, because the tenants share facilities.
When you invest in an HMO property, the rental income from multiple rooms (as opposed to renting the property out as a single dwelling) often results in higher aggregate income.
This is why letting a property as an HMO may be more profitable, than to a single family unit.
Below is an example of how higher rental yield can be achieved by letting a property as an HMO.
It may also be possible to convert reception rooms into bedrooms (which a family may not choose to do) and therefore increase the potential rental income even further.
There are a couple of differences between standard buy-to-let and HMO mortgages, most notably in availability, HMO mortgage rates, and lender fees.
As HMO’s have multiple occupants, they are deemed a higher risk to loan money against, than a normal buy-to-let. This is because HMO tenants tend to have a more transitional and/or seasonal (e.g. students) lifestyle. This can mean higher levels of tenant turnover and voids, should one or more of the tenants move out, without immediately being replaced.
A single family unit in a standard buy-to-let will tend to be more settled, with longer-term plans to reside in the property.
Secondly, due to the aforementioned risk with lending to an HMO and the specialist nature of the mortgage, the lender’s fees are often higher on HMO-specific products.
The rules around HMO licensing changed on October 1st, 2018. Check whether your HMO property will require a licence from the relevant local authority.
You must have a licence if you’re renting out a large HMO. Your property is defined as a large HMO if all of the following apply:
Even if your property is smaller and rented to fewer people, you may still need a licence depending on the area the property is located in.
If you are unsure, check with your local council...
The UK government's website offers a postcode-based search in order to identify which council issues licences for your property, and where you can access further information regarding HMO's and their licensing:
Failure to apply for a licence when one is required can carry significant penalities.
It is worth noting that:
There are conditions associated with an HMO licence, including (but not limited to):
If you fail to meet the conditions on a licence without a reasonable excuse you are committing a criminal offence and could face significant penalties.