What is an HMO for mortgage purposes?
For lending purposes, an HMO is typically defined as a rental property occupied by multiple tenants forming two or more households, who share facilities such as a kitchen, bathroom or toilet.
Most lenders distinguish between standard buy-to-let properties and houses in multiple occupation because HMOs involve:
- Multiple tenants rather than a single household.
- Higher tenant turnover and management demands.
- Greater regulatory oversight from the local authority.
- Increased fire safety and licensing requirements.
A property may still be classed as an HMO for mortgage purposes even where it falls outside mandatory licensing thresholds, meaning lenders apply HMO mortgage criteria regardless of whether a licence is legally required.
Do you need a specific HMO mortgage?
In most cases, lenders offer HMO mortgages that are separate from standard buy-to-let HMO mortgages. Using a standard buy-to-let mortgage for a property that operates as an HMO can place the landlord in breach of lender requirements, even where the tenancy arrangements appear informal.
An HMO buy-to-let mortgage reflects the fact that:
- The rental income comes from individual tenants.
- The property may generate higher rental income than a single let.
- The risk profile is different due to multiple occupation.
Some smaller HMOs may be accepted by certain lenders under enhanced buy-to-let products, but this is increasingly uncommon. The majority of lenders require a dedicated HMO mortgage once a property is rented to three or more tenants from separate households.
How HMO mortgage lending criteria differ from buy-to-let
HMO lending criteria are stricter than standard buy-to-let criteria in several areas.
Fewer lenders in the HMO mortgage market
The HMO mortgage market is smaller, with fewer lenders willing to fund houses in multiple occupation. As a result:
- Mortgage options are more limited.
- Interest rates are often higher.
- Lending policies vary significantly between lenders.
Many landlords work with a mortgage broker who has access to specialist lenders operating in the HMO market, rather than relying on high street products.
Higher deposit requirements
Most HMO lenders require a larger deposit than standard buy-to-let mortgages. Typical deposit levels range from 25% to 35%, with large HMOs often attracting higher minimum deposits.
The deposit requirement reflects:
- Increased perceived risk.
- Higher management and void period exposure.
- Regulatory and licensing considerations.
Rental income assessment
Rental income is central to HMO mortgage affordability. Unlike single lets, lenders assess:
- Total rental income from all tenants.
- Potential rental income rather than just current rent.
- Sustainability of income during void periods.
Many lenders apply a higher stress test to mortgage repayments, particularly where interest rates rise.
Loan-to-value (LTV) for HMO mortgages
The loan-to-value ratio for an HMO mortgage is usually lower than standard buy-to-let products.
Typical LTV ranges are:
- Up to 75% for smaller HMOs with strong rental income.
- 65% to 70% for large HMOs.
The exact LTV offered will vary depending on:
- Property size and layout.
- Number of tenants.
- Local demand and rental income potential.
- Landlord experience and financial standing.
How rental income is calculated
HMO lenders assess affordability using projected rental income rather than personal income alone. This often works in the landlord’s favour due to the higher rental yields HMOs can generate.
Stress testing mortgage repayments
Most lenders require rental income to cover between 125% and 145% of mortgage repayments at a stressed interest rate. The stress rate is often higher for HMOs than standard buyto-let.
Where a property demonstrates strong rental yields and higher rental income, lenders may be more flexible on stress testing thresholds.
Evidence of rental income
Lenders may request:
- Existing tenancy agreements.
- A rental valuation from a surveyor.
- Comparable local rental evidence.
Properties let to working professionals or young professionals may be viewed more favourably due to the perceived stability of income.
HMO licence requirements and lender expectations
A valid HMO licence plays a central role in HMO lending decisions.
Mandatory and additional licensing
Where a property requires a licence - typically where there are five or more tenants - lenders will expect confirmation that:
- A valid HMO licence is in place.
- The licence conditions match the property layout and occupancy.
- Fire safety regulations have been met.
Some lenders will issue mortgage offers subject to licensing being obtained before completion, while others require the licence to be granted in advance.
Local authority considerations
Lenders are increasingly cautious where properties sit within areas subject to selective licensing or additional HMO licensing schemes. Evidence of compliance with local authority requirements is often requested as part of the application process.
Landlord experience and lending criteria
Landlord experience is one of the most influential factors in HMO mortgage approval.
Prior landlord experience
Many lenders require prior landlord experience before offering HMO mortgage products. This may include:
- Experience managing standard buy-to-let properties.
- Previous experience operating an HMO.
- Evidence of compliance history.
First-time landlord applications are possible, but they tend to be limited to smaller HMOs and require stronger financial standing or professional management arrangements.
Experienced landlords and large HMOs
Large HMOs are usually reserved for experienced landlords with a proven track record. Lenders assess:
- Management capability.
- Systems for tenant management and maintenance.
- Understanding of licensing requirements.
Property valuation and suitability
Property valuation for an HMO mortgage differs from standard buy-to-let valuation.
Surveyors assess:
- Property value as an HMO rather than a single dwelling.
- Suitability for multiple occupation.
- Shared facilities, room sizes, and layout.
Properties where tenants share toilet or kitchen facilities must meet minimum space standards and fire safety requirements to satisfy lender requirements.
HMO mortgage rates and interest rates
HMO mortgage rates are generally higher than standard buy-to-let rates due to the additional risk profile.
Factors influencing mortgage rates include:
- Property size and number of tenants.
- Loan amount and LTV.
- Landlord experience.
- Whether the mortgage is held personally or through a limited company.
Some lenders offer favourable terms where the rental income potential is strong and void periods are mitigated through demand.
Limited company HMO mortgages
Many landlords choose to hold HMO property within a limited company structure.
Limited company HMO mortgages often:
- Carry slightly higher interest rates.
- Require personal guarantees from directors.
- Offer tax planning flexibility for experienced landlords.
Specialist lenders dominate this area of the HMO mortgage market, and lender requirements vary significantly.
Early repayment charges and mortgage products
HMO mortgage products often include:
- Fixed rate periods with early repayment charges.
- Arrangement fees reflecting specialist underwriting.
- Limited flexibility compared to standard buy-to-let mortgages.
Understanding early repayment charges is particularly relevant where landlords plan to refinance following refurbishment or licence variation.
Is it hard to get an HMO mortgage?
HMO mortgages are more complex, but they are not unattainable where preparation is thorough.
Applications are more likely to succeed where landlords can demonstrate:
- Compliance with licensing requirements.
- Clear rental income projections.
- Appropriate landlord experience.
- A realistic investment strategy.
Working with the right lender and often a specialist mortgage broker is important when to looking to pursue an HMO mortgage. An expert in housing law such as AST Assistance can help you understand every stage of the process and how to enable the best outcome possible for your mortgage application.
How AST Assistance supports landlords with HMO lending considerations
Although AST Assistance does not act as a mortgage broker, we work closely with landlords to address the legal, compliance, and management issues that directly affect HMO mortgage outcomes.
Our support includes:
- Advising on HMO licensing requirements and enforcement risk.
- Reviewing tenancy structures and management arrangements.
- Supporting landlords where compliance issues may affect lending decisions.
- Advising on possession strategy and tenant management within HMOs.
Lenders expect landlords to demonstrate a deep understanding of their obligations. AST Assistance helps landlords present their HMO property and management approach in a way that aligns with lender expectations.
For landlord-focused advice on HMO compliance, tenancy management and dispute resolution, contact AST Assistance on 01706 619954.
