What is an HMO mortgage?

An HMO mortgage is a specific type of buy to let mortgage. It is for landlords who wish to rent out a property to multiple tenants.

HMO mortgages tend to carry different rates and fees than mortgages for standard buy to let property, due to them being deemed as a higher risk. This is because HMO’s are more often subject to a higher turnover of tenants potentially resulting in more rental voids than a standard buy to let and damage to the property is more common. All of these factors increase the risk of investment for the lender.

What does HMO mean?

HMO stands for House of Multiple Occupation. It refers to a property rented out to at least three people, from more than one household, who share facilities.

HMOs are sometimes referred to as a ‘house share’ where several individuals live in a single property. Generally, they will have their own bedroom, but other parts of the property such as living room, kitchen and/or bathrooms are shared facilities. Each tenant will usually pay rent to the landlord, which can be cheaper than renting an entire property. One specific type of HMO scenario, is the shared student HMO, but HMO’s can also be used by professional people keen to live in expensive city-centre locations.

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Do I need a licence for an HMO?

The council local to your HMO property will be able to tell you if it needs to be licensed.

If your property is in England or Wales and is defined as a large HMO, you must obtain a licence from your local authority. A large HMO is defined by the following criteria:

  • The property is rented to five or more people who form more than one household
  • Tenants share toilet, bathroom or kitchen facilities
  • One or more tenants pay rent

You might still need a licence even if your property isn’t classed as a large HMO. This varies across the UK so you should check with your local council for a definitive answer. Failure to apply for a licence when one is required can carry significant penalties.

Applying for an HMO licence

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:

It is worth noting that:

  • You will need a separate licence for each HMO you run
  • Councils may have long timeframes (months) for processing a licence, so plan ahead

There are conditions associated with an HMO licence, including (but not limited to):

  • The property must have adequate space (each room needs to meet a minimum room size which varies based on how many rooms are in the property, the local council can guide on the required sizes) and facilities for the residing tenants
  • The manager of the HMO (you or the agent) must be ‘fit and proper’ e.g. no criminal record or breaches of landlord laws or codes of practice
  • Gas certificates must be updated annually and sent to the licensing council
  • Smoke alarms must be installed and maintained
  • Safety certificates for all electrical appliances must be available on request

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.

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Can a first-time buyer get an HMO mortgage?

Yes. Even as a first-time buyer or first-time landlord, you could still get an HMO mortgage.

While a first-time buyer might have a little more difficulty obtaining a mortgage, there are lenders on our panel who will be able to provide an HMO mortgage. The criteria may be a little stricter, due to there being no previous experience of managing a property, though this doesn’t necessarily mean the rates offered will be any higher.

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What is the difference between a HMO mortgage and a traditional buy to let?

A HMO mortgage is a specific type of buy to let mortgage. The mortgages themselves vary in several ways.

As HMO’s have multiple occupants, they are deemed a higher risk to loan money against, than a traditional 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 longer void periods, 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. This isn’t to say that you will have higher fees to pay if looking for a HMO mortgage. We have access to a variety of specialist and high street lenders. Our advisors will help you find a product that ticks your boxes, whether you are prioritising product fee, initial rate, rate length or additional benefits.

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What is the criteria for a buy to let HMO?

Each HMO buy to let mortgage lender will have their own specific set of criteria; the summary below is a general guide.

  • Loan amount: many lenders stipulate a minimum of £25,000, however it is possible to borrow less than this. The maximum loan amount is £15m.
  • Maximum loan to value: up to 80% LTV
  • Individual rooms: no limit on the number with some lenders
  • Multiple kitchens: may be considered
  • Tenancy agreements: individual rooms or joint and severally liable tenancy agreements are eligible, dependent on the lender
  • Tenants receiving benefits: may be considered with some lenders
  • Affordability tests: may include rental for each room or flat
  • HMO mortgages are a specialist form of lending, not all lenders offer HMO mortgages
  • Due to the specialist nature of an HMO property, the rates are typically higher than for standard buy to lets
  • Experience is an important element for many lenders. There is only a limited number of lenders who lend to first-time landlords looking to finance an HMO.

All of the above is subject to each HMO mortgage lender’s individual criteria.

We work with a range of over 80 UK buy to let mortgage lenders, including:

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How is an HMO different from a Multi-Unit Block?

HMO and Multi-Unit Block properties are both owned (either outright or with a mortgage) by the landowner. They both offer accommodation to different tenant units.

The main difference is that multi-unit blocks 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 a separate lounge, dining and bedroom space, or a studio/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 could not, however, sell a bedroom in an HMO under a separate title, as it would lack all the facilities required.

We have access to MUB specific products, but some lenders combine their MUB and HMO offerings into one product.

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How much deposit do I need for a HMO?

The minimum deposit that our lenders accept on an HMO mortgage is 20% of the loan to value of the property.

The larger the deposit you are able to provide, the larger the range of products you will have access too. To learn more about LTV’s and deposits, visit our LTV and deposits page, or use our LTV calculator here.

Why are HMO rates so high?

As we have mentioned previously, lenders associate more risk with HMO products when compared to single self-contained units. This means that the rates of HMO buy to let products tend to be higher than standard buy to let mortgage products.

Another reason rates can be higher is that the lender market for HMOs is smaller and less competitive than the traditional buy to let market. This means that whilst we have access to a range of HMO lenders, as HMOs are a specialist product, there are fewer lenders than for traditional buy to lets, and there is less incentive for them to lower rates.

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