Damian Youell

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HMO Mortgages

You may have heard of the term ‘HMO’ more frequently lately or sometimes it can be referred to as ‘house share’. HMO stands for ‘House in Multiple Occupation’ or ‘House with Multiple Occupants’ which is described as a home shared by more than one household and where there are common areas that are shared.

This has become increasingly popular for landlords as a way to maximise their rental income by subdividing a large house or apartment and letting it out to more than one household as a way to create more tenancies, rather than conventionally letting the property to just one household.

HMOs have been around for a long time but new rules and regulations have been implemented to ensure landlords are following the guidance and making their property as safe as possible for their tenants.

In this article, we take a deep dive into HMOs and getting a HMO mortgage.

Post Topics

What is a HMO?

HMO mortgages

Next steps


What is a HMO?

A House in Multiple Occupation (HMO) is a property let to numerous tenants on separate tenancy agreements. Landlords are always striving for ways to increase their yield and the return on their investments. Therefore, HMO properties can be a lucrative way for a landlord to increase their rental income simply from having multiple tenants and charging them per room, instead of charging one household to rent the whole property as a single let. The most frequent type of HMOs are shared housing usually common for student lets and professional lets.

If a property has three tenants or more living there forming more than one household with shared facilities between the tenants such as toilet, bathroom or kitchen, then this is classified as a house in multiple occupation (HMO). A large HMO is when there are 5 tenants or more forming more than one household in one home.

Rules and regulations have been changed and added over the years for landlords to meet certain standards and obligations. There are mandatory licenses from the government and local authorities which needs to be approved and renewed every five years. Licenses are not just required per landlord, but for every individual HMO property. Licenses may get rejected and renting a property without a license is a serious offence and can face legal consequences. Appeals for rejected licenses can be made and in some cases you may be required to make changes to the property until it meets the standard required as per your local council’s requirements. In the past HMOs were classified as a property with three or more storeys but since 1st October 2018 this rule has been removed in England and Wales leading to more properties being pushed into the HMO category.

An increase demand for rental properties and the ability to achieve a higher rental yield have encouraged landlords to invest in HMO properties. HMOs usually works out cheaper to rent than for tenants to rent a whole property on their own which is a huge incentive for tenants and bills are often included as part of their tenancy such as gas, electricity, water and council tax.


HMO mortgages

There are many types of HMO mortgages and although every case is different and there are exceptions, most lenders do tend to prefer for HMO mortgages for the borrower to have some experience in letting a property. The task of taking on multiple tenancies can be complicated and not having experience in being a landlord can be risky.

A lot more laws and legislation have been introduced in recent years around HMOs in terms of how the property is looked after, licensing and facilities that needs to be available for health and wellbeing of the tenants, and these are all things that will of interest to a lender. Along with the property itself, there may be other things to consider by a lender especially for apartments such as access rights and it’s surroundings.

Most lenders tend to require borrowers to have a loan-to-value (LTV) ratio at a maximum of 75%, although there might be some cases where some lenders can increase to 85%. A stress test may also be carried out which can determine how much you can borrow per pound of rental income although some lenders may assess this based on renting the property to one household rather than consider the rental income from individual separate tenancies of the HMO property. A specialist valuation process may be required by a lender to be carried out for HMO mortgages which may lead to higher associated fees.

Lenders tend look at HMOs as specialist properties, therefore interest rates for HMO loans can be higher than a mortgage for a normal residential let although some lenders do offer competitive rates for smaller HMOs. Most landlords are not disincentivised by the higher interest rates since their rental income as a HMO will likely be greater than renting the property as a whole. It’s worth noting that not all standard buy to let lenders will also lend for HMOs mortgages as they see HMOs as a separate product which holds more risks and greater level of management, so you may be required to look in the specialist market for a mortgage and many require you to apply through a mortgage broker.


Next steps

HMO can cause some complications and seem complex when it comes to finding the right lender and you may require specialist lenders. Each lender may have different lending requirements and expectations from an application or a property. Contact us today if you want to know more information on HMOs and help finding the right lender.