House of Multiple Occupancy (HMO) Mortgages 

Letting out a property to more than one household can be a profitable way to generate income. We look at how it works from a mortgage perspective and what you should consider when taking out a mortgage.

What is a House of Multiple Occupancy (HMO) mortgage? 

A House of Multiple Occupancy (HMO) is a property rented out to three or more unrelated tenants. The residents usually share some facilities such as a kitchen or bathrooms, but have separate, lockable living spaces. 

An HMO mortgage is a Buy to Let mortgage that accepts borrowers whose rental property is a House of Multiple Occupancy. 

Who can obtain a HMO mortgage?

Buy to Let mortgages are generally less focused on the individual taking out the mortgage, and more led by the details of the Buy to Let properties they cover. 

That said, many lenders will expect you to own your own home, meet set age limits, and sometimes you need to satisfy minimum income requirements. The lender will also look at your credit score.

In what circumstances would you need a HMO Mortgage?

Lenders often see HMOs as specialist properties, making it more difficult and more costly to get a mortgage. 

Properties were previously classified as HMOs if they were at least three storeys high, but this rule was removed in England and Wales in 2018.

If your rental property has three or more tenants who share some facilities, you may need to seek out a special HMO mortgage. 

How do you go about arranging a mortgage for your HMO?

Many Buy to Let mortgage lenders won’t accept HMO properties, as they are seen as more risky than a standard Buy to Let for a single household. 

Nevertheless, some lenders will offer you a mortgage on the right HMO. The majority of Buy to Let mortgages are only available via a mortgage broker, so get in touch with us and we will explore all the options for you.

Buy to Let mortgages generally require a deposit of at least 25% of the property value. 

How are they different from a standard Buy to Let mortgage?

HMO mortgages often set additional criteria for an HMO mortgage. This might include:

• A minimum property value, often £75,000 or £100,000
• Prior experience as a standard or HMO landlord, usually 1-2 years
• Number of storeys – often four storeys or less
• A maximum number of bedrooms, often six or eight
• No more than one kitchen in the property
• A communal seating area in the property

HMO mortgage rates are often higher than with a standard Buy to Let mortgage. Remember that Buy to Let mortgages are not authorised and regulated by the Financial Conduct Authority.

How will an HMO mortgage lender assess my application?

The lender will require many details from you about the property, the rental incomes you expect to receive from your tenants, and your personal details. 

The lender then assesses this information against their lending criteria. This is why working with a broker can save you a great deal of time and effort – we will make sure that you meet all the mortgage requirements to get your application approved. 

How is my income used to calculate my affordability?

Your income is important because you will need to cover the mortgage repayments even if you don’t have a tenant in place. The lender will request evidence of your annual earnings, which might involve supplying payslips, or business accounts or tax records if you are self-employed. Rental income from other properties can count towards your income. 

What is a HMO Licence and who can get one?

You will need an HMO licence if your property:

• has three or more habitable storeys or 
• is occupied by five or more people from at least two households who share facilities

If either of these apply, you have a large HMO and you must register it with your local council to get a licence. An HMO licence lasts five years and your local authority will perform a number of checks before awarding it. Some councils may have their own HMO licence requirements so you should refer to your local council.

Many mortgage lenders will require you to have a licence for these types of properties, but they might allow time for you to get one while they process your application. 

How can Mortgage Advice Centre help you?

We are here to help you with advice and mortgage research for your HMO property. We will explore criteria, interest rates and fees to recommend the most suitable products for your situation. 

We help landlords with all kinds of properties find a good mortgage deal, both those operating as an individual or through a limited company. For an initial chat about how we can help you, contact us today.

Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.