Houses in Multiple Occupancy (HMO) can be more lucrative than regular Buy-to-Let properties. What are the pros & cons of purchasing a HMO property?
HMO Mortgages
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
What is a
HMO property?
A house or flat is likely to be a HMO (House in Multiple Occupation) if the property is rented out to 3 or more individuals who are not part of the same household and share a kitchen, bathroom or toilet.
Advantages
Higher Rental Yields
HMOs typically generate significantly higher rental income compared to single-let properties, as rent is collected from multiple tenants.Diversified Rental Income
If one tenant leaves, you still receive income from the others, reducing the impact of void periods on your cash flow.Strong Demand in Urban Areas
In university cities or large towns, there is usually a strong demand for shared accommodation, particularly among students and young professionals.Tax Deductible Expenses
Interest on HMO mortgages and property management costs are often tax-deductible, potentially reducing your overall tax bill.More Control Over Rent Increases
With individual room tenancies, you may have more flexibility to increase rents in line with market conditions.Value Uplift Potential
A well-run HMO can be revalued based on income (commercial valuation), which may be higher than a standard residential valuation, allowing for equity release.
Disadvantages
Higher Upfront and Running Costs
HMOs often require additional compliance (e.g., fire doors, alarms, multiple bathrooms) and higher furnishing/maintenance standards.Stricter Regulations
Many HMOs require a licence, and local councils impose strict rules on room sizes, amenities, and safety standards.Specialist Mortgages Required
HMO mortgages are more complex, usually with higher interest rates and stricter lending criteria than standard buy-to-let mortgages.More Intensive Management
Managing multiple tenants in a single property can be time-consuming, and disputes or maintenance issues are more frequent.Limited Market for Resale
Selling an HMO can be harder than a standard property, as it often appeals only to investors rather than owner-occupiers.- Greater Exposure to Market Changes
HMO profitability can be affected more severely by changes in regulation, taxation (e.g., Section 24), or shifts in tenant demand.
HMO Licencing
Not every property needs a HMO licence, you will need to check with your local council. It will depend on the location and type of property as to whether a licence would be required.
There are 3 different types of licensing;
Mandatory licensing – New licencing rules came into force in October 2018 making more HMO properties require a licence. The licence applies if 5 or more tenants are living together as 2 or more households and share facilities.
Additional licensing – If the property is not subject to a mandatory licence the council can impose a licence. The licence applies if 3 or 4 tenants are living together as 2 or more households and share facilities.
Selective licensing – Local Authorities introduced this licensing in relation to private rented properties in particular areas. The licencing is introduced if the council believe that there is low housing demand or anti-social behaviour.
How much does a licence cost?
There is no set amount as each council charges a different fee.
Are licences transferable?
Licences are not transferable.
How long does a licence last?
A licence lasts for 5 years. Councils can grant a shorter term in certain circumstances.
Do all my properties require a licence?
Yes – Each property will require its own licence.
Is there a minimum bedroom size in HMO properties?
Minimum bedroom sizes (subject to council variances):
• 6.51 square metres for 1 person over 10 years of age
• 10.22 square metres for 2 people over 10 years of age
• 4.64 square metres for 1 child under the age of 10 years
Any area of your bedroom where the ceiling height is less than 1.5 meters can’t be counted towards the minimum room size.
HMO Valuations
A valuation will be normally be carried out by the Royal Institution of Chartered Surveyor’s Valuation Professional Standards. The valuation standards are a set of mandatory rules and guidelines for RICS Registered Valuers.
There are 2 different types of valuations – Bricks & Mortar or Investment Valuation
Bricks & Mortar – Single dwelling property where the valuer will base the figure on the market value and local comparables.
Investment Valuation – The property will be valued on a commercial basis. This will be based on a yield, the value being linked to the rental income.
Most HMO lenders base their valuation on a Bricks & Mortar valuation.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
FAQs
on
HMO
Mortgages
What is an HMO mortgage?
An HMO mortgage is a type of buy-to-let mortgage used to finance a House in Multiple Occupation, where a property is rented to multiple tenants who are not from the same household. These mortgages are designed to reflect the higher rental income and additional management complexity of HMOs.
What qualifies as an HMO?
A property is generally classed as an HMO if it is rented to three or more tenants forming more than one household who share facilities such as a kitchen or bathroom. Larger HMOs with five or more tenants usually require mandatory licensing.
What is the difference between a standard buy-to-let and an HMO mortgage?
HMO mortgages typically involve stricter criteria than standard buy-to-let mortgages. Lenders may require higher deposits, apply different affordability calculations, and assess landlord experience more closely due to the increased risk and complexity.
How much deposit do I need for an HMO mortgage?
Most HMO mortgage lenders require a minimum deposit of around 25–30%. Larger HMOs or first-time HMO landlords may be asked for a higher deposit depending on the lender and property type.
Can first-time landlords get an HMO mortgage?
Some lenders will consider first-time landlords for small HMOs, although options may be limited. Larger HMOs are more commonly restricted to experienced landlords with a proven track record.
How is affordability assessed for an HMO mortgage?
Affordability is usually based on the total rental income from all letting rooms. Lenders apply stress tests to ensure the rental income comfortably covers the mortgage payments at a higher interest rate.
Do I need an HMO licence to get a mortgage?
Most lenders expect the property to meet local authority licensing requirements. For larger HMOs, evidence of a valid licence is usually required either at application or before completion.
Are HMO mortgage rates higher than standard buy-to-let rates?
HMO mortgage rates are often slightly higher than standard buy-to-let rates due to the additional risk and management involved. Rates vary based on loan-to-value, property size, and landlord experience.
Can I get an HMO mortgage through a limited company?
Yes. Many landlords choose to hold HMOs in a limited company. Limited company HMO mortgages are widely available, although lenders may require personal guarantees from directors.
Can I remortgage an existing HMO?
Yes. Landlords often remortgage HMOs to secure a better rate, release equity, or fund further investment. Lenders will reassess rental income, property value, and licensing compliance.
Are large HMOs treated differently by lenders?
Yes. Large HMOs, typically with six or more bedrooms, are often assessed more like commercial properties. Fewer lenders operate in this space, and additional documentation may be required.
Is an HMO mortgage suitable for all landlords?
Not always. HMOs can offer higher rental yields but involve greater management responsibilities, regulatory requirements, and lender scrutiny. Suitability depends on experience, finances, and long-term strategy.
