HMO mortgages

HMO stands for House of Multiple Occupation. It refers to a property rented out to at least three people, from more than one household, who share property facilities.

HMOs are sometimes referred to as a ‘house share’ where several individuals live in a single property.

Generally, they will have their own bedroom, but other parts of the property, such as living room, kitchen and/or bathrooms are shared facilities.

Each tenant will usually pay rent to the landlord, which can be cheaper than renting an entire property.

HMOs can also be used by students, recent graduates, those new to an area, contractors or professional people and more who are keen to live in affordable accommodation in expensive city-centre locations.

The council, local to your HMO property, will be able to tell if it needs to be licensed.

If your property is in England or Wales and is defined as a large HMO, you must obtain a licence from your local authority. A large HMO is defined by the following criteria:

• The property is rented to five or more people who are from more than one household
• Tenants share toilet, bathroom or kitchen facilities
• One or more tenants pay rent

You might still need a licence even if your property isn’t classed as a large HMO. This varies across the UK, so you should check with your local council for a definitive answer. Failure to apply for a licence when one is required can carry significant penalties.

The UK government’s website offers a postcode-based search in order to identify which council issues licences for your property, and where you can access further information regarding HMOs and their licensing:

• Apply for an HMO Licence in England or Wales
• Apply for an HMO Licence in Scotland
• Register an HMO in Northern Ireland

It is worth noting that:

• You will need a separate licence for each HMO you run
• Councils may have long timeframes (months) for processing a licence, so plan ahead

There are conditions associated with an HMO licence, including (but not limited to):

• The property must have adequate space (each room needs to meet a minimum room size which varies based on how many rooms there are in the property, the local council can guide on the required sizes) and facilities for the residing tenants
• The manager of the HMO (you or the agent) must be ‘fit and proper’ e.g. no criminal record or breaches of landlord laws or codes of practice.
• Gas certificates must be updated annually and sent to the licensing council
• Smoke alarms must be installed and maintained
• Safety certificates for all electrical appliances must be available on request

If you fail to meet the conditions on a licence without a reasonable excuse, you are committing a criminal offence and could face significant penalties.

Yes, first-time buyers and first-time landlords can get an HMO mortgage.

An HMO mortgage is a specific type of buy to let mortgage. The mortgages vary in several ways.

As HMOs have multiple occupants, they are deemed a higher risk to loan money against than a traditional buy to let. This is because HMO tenants tend to have more transitional and/or seasonal (e.g. students) lifestyle.

This can mean higher levels of tenant turnover and longer void periods, should one or more of the tenants move out, without immediately being replaced. A single-family unit in a standard buy to let will tend to be more settled, with longer-term plan to reside in the property.

Secondly, due to the aforementioned risk with lending to an HMO and the specialist nature of the mortgage, the lender’s fees are often higher on HMO mortgage rates.

HMO and Multi-Unit Block properties are both owned (either outright or with a mortgage) by the landowner. They both offer accommodation to different tenant units.

The main difference is that multi-unit block has no shared living facilities. Each unit will have a front door, kitchen facilities, a bathroom and a living space (whether that is a separate lounge, dining and bedroom space, or a studio/bedsit, where one space combines lounge and kitchen facilities).

If a multi-unit block does not share utilities, the units could, hypothetically, be split into leasehold titles and sold separately. You could not, however, sell a bedroom in an HMO, under a separate title, as it would lack all of the facilities required.

We have access to MUB specific products, but some lenders combine their MUB and HMO offerings into one product.

The minimum deposit that our lenders accept on an HMO mortgage is 15% of the loan to value of the property.

The larger the deposit you are able to provide, the larger the range of products you will have access to.

To learn more about LTV and deposits, visit our LTV and deposit page or use our LTV calculator.

Lenders associate more risk with HMO products when compared to single self-contained units. As a result, HMO mortgage rates tend to be higher than standard buy to let mortgage products.

Another reason rates can be higher is that the lender market for HMOs is smaller and less competitive than the traditional buy to let market.

This means that whilst we have access to a range of HMO lenders; because HMOs are a specialist product, there are fewer lenders compared to traditional buy to lets, thus there is less incentive for lenders to lower their rates.