HMO Mortgages

HMO mortgages are specifically designed for landlords who rent out one property to several unrelated tenants, such as students or professionals sharing a house. 

While the set-up can seem a bit more complex than a standard buy-to-let, the potential rental income is typically higher. So if you’re serious about boosting the returns from your property investment portfolio, an HMO Mortgage could be a smart move.

What Is an HMO?

A House in Multiple Occupation (HMO) is a property rented out by at least three people who are not from one household (i.e., they are not family) but share facilities such as a bathroom and kitchen.

Key features of an HMO:

• The property is occupied by unrelated tenants.

• Shared amenities include bathrooms, kitchens, and sometimes living rooms.

• Tenants usually have individual tenancy agreements.
  

Common examples of HMOs:

• Student accommodation

• Shared housing for young professionals

• Bedsits with shared communal areas
  

HMOs are regulated more strictly than standard rental properties due to the higher number of occupants and the associated safety risks.

Large or Small HMO?

The classification of HMOs into small and large categories affects the type of mortgage you might need, as well as licensing requirements.

Small HMO:

• Typically houses 3 to 4 tenants forming more than one household

• Tenants share common areas

• May not always require a license, depending on local council rules
  

Large HMO:

• Houses 5 or more tenants forming more than one household

• Must have three or more storeys (in most cases)

• Requires mandatory licensing in England and Wales
  

Licensing regulations can vary by location, so you should always check with your local authority to ensure your in compliance before you proceed with the purchase of a property that's classed as a large HMO.

For HMO Mortgages, a lender would likely want confirmation that a satisfactory license is in place and see evidence of this.

How Do HMO Mortgages Work?

HMO Mortgages are tailored home loans for landlords investing in multi-tenancy properties. Because these properties are considered higher-risk by lenders, they typically require more thorough vetting and higher deposits.

Here’s how an HMO Mortgage typically works:

• Application process: More rigorous than for standard buy-to-let mortgages. Lenders may request a detailed business plan and experience in property letting.

• Interest rates: Often higher than standard mortgages due to perceived risk.

• Deposit requirement: Usually between 25% to 30% of the property value.

• Tenancy structure: Lenders might stipulate the type of tenancy agreements needed for your HMO (e.g., individual Assured Shorthold Tenancies (ASTs) or a joint AST covering the whole property).
  

Some lenders may only offer HMO Mortgages to limited companies or experienced landlords, so it’s important to find the right lender to suit your requirements.

Using the services of a mortgage broker with experience arranging mortgages for these types of rental properties can be a smart move, as they will already know which lenders can help.

When Would You Need an HMO Mortgage?

You will typically need an HMO Mortgage if the property you intend to buy or remortgage meets the following criteria:

• The property is (or will be) rented to three or more unrelated tenants.

• Tenants have individual tenancy agreements.

• Facilities such as the kitchen, bathroom, or toilet are shared.

• The property is not occupied by a single family or household.
  

Examples:

• A 5-bedroom property rented out to five university students

• A converted property offering self-contained bedsits with shared bathrooms and kitchens

• A large house split into units for working professionals

• Private halls of residence

• Hostels
  

If the property meets these standards, lenders will require you to apply for a specific HMO Mortgage instead of a standard buy-to-let mortgage.

Is an HMO Mortgage More Expensive?

Yes, in general, HMO Mortgages tend to be more expensive than standard buy-to-let mortgages. The increased cost is mainly due to the perceived risk of letting to multiple unrelated tenants and the higher management complexity involved.

Costs to consider:

• Higher interest rates: Rates can range from 1% to 2% above standard mortgage rates, depending on the lender and your circumstances.

• Valuation fees: HMO valuations can be more complex and, as a result, will cost more.

• Licensing costs: Local councils may charge a licensing fee, especially for large HMOs.

• Management fees: Letting agents often charge more for managing HMOs due to the added responsibility.
  

These higher costs can be offset by the increased rental income typically generated by HMOs compared to standard rentals.

How Much Can You Borrow for an HMO Mortgage?

The amount you can borrow depends on several factors, including the property type, rental income potential, and your financial profile.

Here's the key considerations:

• Loan-to-Value (LTV): Most HMO lenders offer up to 75% LTV, but some could go as high as 80%.

• Rental income: Lenders use a rental coverage ratio, which means the rental income must typically cover 125% to 145% of the mortgage payment.

• Experience: Many lenders prefer applicants with prior landlord experience, especially for large HMOs.

• Property type: Converted properties or those requiring renovation may attract lower LTV ratios.

Who Can Have an HMO Mortgage?

While anyone can technically apply, HMO Mortgages are more accessible to certain types of borrowers, namely: 

• Experienced landlords: Those with a track record in property letting are favoured.

• Limited companies: Many lenders prefer lending to SPVs (Special Purpose Vehicles).

• Professional landlords: Individuals managing multiple rental properties.

• Property developers: Especially those converting properties into HMOs.
  

Can First-Time Landlords Get an HMO Mortgage?

It is possible, though it can be much more challenging compared to those with prior experience. Lenders typically see HMOs as higher-risk investments, so they favour applicants who can demonstrate knowledge, planning, and financial responsibility.

Here’s what can help a first-time landlord qualify:

• Strong financial position: A good credit history, stable income, and the ability to afford a large deposit (usually 25–35%) will improve your chances.

• Detailed business plan: A well-researched strategy showing expected rental income, occupancy rates, and property management plans.

• Professional property management: Partnering with an experienced letting agent can provide reassurance to lenders.

• Starting with a small HMO: Smaller HMOs are often easier to finance and manage, making them more suitable for first-time landlords.
  

Although fewer lenders cater to first-time HMO landlords, it's all about presenting a strong, well-prepared and considered case to them, which is why working with an experienced mortgage broker can make all the difference.

They'll help you prepare your business case and application before identifying only those lenders who they know would more likely look favourably on first-time landlords for this type of rental property.

Which Mortgage Lenders Offer HMO Mortgages?

Due to the complexities involved with arranging lending for HMOs, specialist lenders will be your best chance of getting the mortgage you need, as they tend to have a much better understanding and experience of dealing with the various nuances associated with these types of rental properties.

As most specialist lenders tend to work only through intermediaries, you’ll need some help from a mortgage broker who knows how to find the right one who can help with your specific requirements. 

This is where we come in! 

Through our sister brand, Haysto, we’ve made mortgages possible for thousands of people with a whole range of specialist mortgage needs, including for HMO properties. 

We’ve done this by building close working relationships with many of the U.K.’s most respected specialist mortgage lenders, such as Kensington Mortgages, Aldermore, United Trust Bank, LandBay and West One Loans. All of these lenders will happily consider HMO mortgage applications.