How do HMOs compare with standard buy-to-let properties?

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    “We know that time is precious for you, we can work around your availability while searching for the most competitive mortgage products and overseeing your mortgage application from start to finish”.

    Jonathan Smith – (CeMAP, BA Hons, Aff SWW, CeRER)

    Are you considering buying a property to use as a house in multiple occupation (HMO)? Or to convert the use of an existing property for HMO purposes? Whilst HMOs can be complicated to set up and time-consuming to manage, they can be far more lucrative than standard buy-to-let investments. There’s also more risk involved with an HMO investment, however, and the criteria set by lenders for a mortgage are stricter than for standard buy-to-let properties. As a result, you need a specialist mortgage for your HMO project.

    At Trinity Finance, we have extensive experience with HMO properties and work closely with lenders offering this niche type of mortgage. In this guide, we’ll explain some of the differences between HMOs and standard buy-to-lets, what you can use an HMO mortgage for, the criteria and whether you need an HMO licence to be approved for a mortgage.

    What is an HMO?

    A property is defined as being an HMO when it is occupied by three or more unrelated tenants who have their own bedrooms but share facilities, such as a toilet, kitchen and bathroom. In other words, it’s a type of shared housing. Tenants in an HMO property pay separate rents and usually sign individual tenancy agreements. A standard buy-to-let property, on the other hand, is rented out to a single household, such as a family, couple or individual. For this type of tenancy, one tenancy agreement is signed and one rental payment is made each month.

    For tenants, an HMO provides the opportunity to rent somewhere when they’re unable to afford rented accommodation on their own. From your point of view as a landlord, this enables you to collect a higher rent overall. This is because each tenant pays rent individually and you can charge more per tenant on that basis. When renting your property to a single household, however, you’re limited as to what you can charge.

    As mentioned earlier, an HMO is a riskier investment than a standard buy-to-let property. There’s a higher turnover of tenants, the likelihood of more void periods and an increased need for maintenance. There’s also more wear and tear on the property. As a result, you need a specialist HMO mortgage instead of a standard buy-to-let one.

    Do you need an HMO licence?

    What is an HMO mortgage?

    An HMO mortgage is more complex to arrange than a standard buy-to-let mortgage. It caters explicitly for multi-let or HMO properties, providing for multiple tenancies under the mortgage terms. This is different from a buy-to-let mortgage, the terms of which won’t allow you to rent out your property under multiple tenancies. If you take out a buy-to-let mortgage and then rent out your property as an HMO or a multi-let, you’ll be in breach of your mortgage terms. This can result in your lender taking legal action against you and, in turn, will also have a negative impact on your credit rating.  

    A mortgage for an HMO property usually takes slightly longer to process than one for a buy-to-let property. This is due to its complex nature, such as the multiple tenancies, HMO regulations, HMO licence and HMO planning permission. These requirements result in stricter lending criteria to minimise the lender’s risk. To help make the process faster, provide your dedicated HMO mortgage broker with all of the documentation needed as quickly as possible. They can then approach the lender most suited to your case for swift approval of your application. If your case is complicated, the mortgage process will take longer to complete than a standard case.

    This niche mortgage is also usually more expensive, with higher rates and fees than a buy-to-let mortgage. Interest-only HMO mortgages tend to be a popular choice. This option means that you only have to pay the interest each month rather than repaying the capital. This helps to keep your monthly payments lower. You can arrange an HMO mortgage in your name or via a limited company, special purpose vehicle (SPV) or limited liability partnership (LLP), which will provide you with tax benefits.

    HMO loan types

    The type of loan you can have for an HMO property depends on the stage it’s at, as detailed below.

    • HMO mortgages and remortgages: These are for existing multi-let and HMO properties.
    • HMO refurbishment mortgages: Suitable for projects requiring either light or heavy refurbishment, these mortgages are for existing HMO properties that need refurbishment as well as for properties that are to be converted to HMOs.
    • HMO development loans: This type of loan is used to finance extensive build projects.

    Not all lenders offer mortgages for HMO properties. Those who do provide them don’t necessarily deal with each of the different types. At Trinity Finance, we work with lenders specialising in each type of HMO loan and have access to exclusive broker-only deals. Lenders also have different criteria that have to be fulfilled for each of these HMO loan types. For the purpose of this guide, we’ll detail the criteria for standard HMO mortgages in the lending criteria section below.

    Get expert help with an HMO mortgage

    Our mortgage brokers, located throughout Kent, London and Edinburgh, are highly experienced in dealing with HMO loans and will approach the right lender for your needs. When you’re ready to proceed with your HMO investment, just give us a call on 01322 907 000 and we’ll be happy to help you. If it’s out of office hours, send an email to us at or a message via our contact form. One of our specialist brokers will get in touch with you as quickly as possible. We’ll find the best HMO mortgage deal to suit your needs and maximise the financing option for your investment.

    HMO mortgage lending criteria

    As mentioned earlier, HMO mortgages are available to individuals, limited companies, special purpose vehicles (SPVs) and limited liability partnerships (LLPs). All HMO mortgage lenders have their own criteria depending on what type of borrower you are. They also take your circumstances and experience into account. To make sure your application is successful, we submit it to the lender whose HMO mortgage requirements can be met according to your situation. When applying for this niche mortgage, it’s not just you as the borrower who needs to meet the HMO mortgage requirements. The property you wish to buy also needs to fulfil certain specifications to be eligible.

    Your eligibility for an HMO mortgage


    Lenders usually expect you to be an experienced landlord before dealing with an HMO property. For example, having at least a year of experience in handling a buy-to-let investment. Some lenders won’t offer you a mortgage unless you’ve had a certain level of experience as an HMO landlord, such as 2 years. There are lenders, however, who consider first-time landlords. Part of a lender’s HMO mortgage criteria, particularly as a new landlord, may require you to instruct a third party to manage the property on your behalf.


    As with any mortgage application, the lender will assess your affordability and check your credit score. Some lenders insist that you have a minimum income, such as £25,000. Others offer a more flexible approach and offer mortgages without a minimum income requirement. The rental income is also usually taken into account, just like it is for standard buy-to-let mortgages. This often needs to meet a set percentage over the monthly mortgage payment you’ll have to make, such as 25% higher.

    HMO mortgage deposit

    You’ll need a substantial deposit for your HMO mortgage. Most lenders offer a maximum loan-to-value (LTV) ratio of 75%. This means you need to have deposit funds that equate to 25% of the property’s value. You may find that some lenders have more stringent requirements, offering much lower LTVs of 60%. In this case, you’d need to have a 40% deposit available. On the other hand, you may be lucky enough to secure a mortgage via a lender offering a higher LTV of 80% or even 85%.

    The property specifications for an HMO mortgage

    Some lenders insist that the property has a minimum value, such as £75,000, while others stipulate a maximum number of bedrooms. Lenders generally want to know:

    • How many lettable bedrooms there are
    • What communal rooms are available
    • How many storeys the property has
    • Where the property is located
    • The types of tenants that will be residing there, such as working professionals or students
    • Whether each tenant will sign an individual tenancy agreement
    • The rental income you expect to achieve
    • Whether an HMO licence is needed

    As more risk is involved with an HMO investment, you may find that some lenders insist on a minimum number of tenants, proof of HMO planning permission or an HMO licence to be in place for the property. We’ll explain the possible need for an HMO licence below.

    Do you need an HMO licence?

    In Scotland and Northern Ireland, it’s mandatory to have a licence for your HMO property. In England and Wales, however, whether or not you need to apply for a licence depends on the size of the property and the local council’s licencing requirements. Large HMOs must have a licence. A property falls under this category if it’s rented to five or more tenants comprising more than one household and the tenants share facilities that can include a kitchen, toilet or bathroom. Smaller properties don’t necessarily need HMO licences as this is determined by the local council.

    HMO licence validity and costs

    An HMO licence is assigned to the property rather than to you as the landlord. Therefore, if you have more than one HMO property that falls under the licencing requirements, you need to obtain a licence for each one. If your property requires a licence and you rent it out without one, it’s considered a serious offence and you may be subject to an unlimited fine. An HMO licence is valid for up to 5 years, except in Scotland where licences are valid for a maximum of 3 years. Wherever your property is located, the licence must be renewed before it expires.

    The costs for HMO licences vary depending on the local councils. Some provide fixed rates while others charge according to the number of bedrooms in the property. The fees can range from hundreds to over a thousand pounds. It’s important, therefore, to take this into account when working on the calculations for your HMO investment.

    Lenders’ licence requirements

    Due to the risk involved with HMO investments, some lenders only provide loans for licenced properties. Others, though, are happy to lend when properties don’t require an HMO licence. The time taken to approve licence applications varies between councils and lenders take this into account. Therefore, if you need a licence and don’t already have one, the lender will likely give you a time frame within which to apply for a licence while your mortgage application is being processed. This is on the proviso that you’re deemed to be ‘fit and proper’ to manage an HMO property. If you already have a licence for the property, this can help to accelerate the underwriting process.

    Approval of the licence

    You should be aware that licence applications aren’t always approved. You may need to make improvements to the property to bring it up to the required standards, for example, before you can reapply for a licence. Don’t worry if HMO investments are new to you. Our mortgage brokers, based in Kent, London and Edinburgh, can help determine whether you need an HMO licence for your property. They can also assist you with the application process.

    An HMO valuation

    When applying for a mortgage for HMO purposes, a specific HMO valuation has to be carried out. This is usually done by a surveyor who’s registered with the Royal Institute of Chartered Surveyors (RICS). There are two valuation types for HMOs:

    • An HMO residential valuation, which is a brick-and-mortar valuation
    • An HMO commercial valuation, which is an investment-based valuation

    Various factors affect the HMO valuation method used by a surveyor. These differ depending on the type of valuation to be carried out.

    HMO residential valuation

    A brick-and-mortar valuation is generally used for single (C3) dwellings. The valuation criteria typically include:

    • The size of the property, including the square footage and the number of bedrooms
    • Its condition
    • The current market value
    • Local comparable properties

    HMO commercial valuation

    This type of valuation is generally higher than a brick-and-mortar one. This enables investors to benefit from a lower LTV and, therefore, more competitive HMO mortgage interest rates. The valuation criteria typically include:

    • The size of the property, such as the number of units or bedrooms
    • Its condition
    • The density of HMO properties in the local surroundings
    • The planning permission use class
    • How the property will be managed
    • Whether an Article 4 direction applies
    • Amenities located near the property
    • Local comparable properties

    The calculation method used for an HMO commercial valuation is based on the anticipated rental income, the operating costs and the yield. The operating costs can be between 15% and 35% at the surveyor’s discretion. The yield is also determined by the surveyor. The calculation used is:

    HMO property value = (gross monthly rent – operating costs) x 12 / yield

    HMO commercial valuation example

    For example, using a gross monthly rent of £3,000, operating costs at 25% and a yield of 10%, the HMO property value would be £270,000:

    (£3,000 – £750) x 12 / 10% = £270,000

    What is an HMO refurbishment mortgage?

    So far, we’ve focused on standard HMO mortgages in this guide but there are also HMO refurbishment mortgages to consider. These allow you to finance renovation or construction work, which includes loft conversions and extensions among other projects. As the property won’t meet the criteria for a standard HMO mortgage, an HMO refurbishment mortgage is required. This is suitable for:

    • An existing HMO property that needs refurbishment
    • A property that is to be converted to an HMO

    You can typically borrow up to an LTV of 75% for an HMO refurbishment mortgage. Usually, you’ll have a set period within which to complete the refurbishment work after you’ve received the HMO loan. For example, the work should be completed within 6 months of the funds becoming available to you.

    For a property that will need an HMO licence, you’ll need to ensure that the licencing requirements are met. These can include locks on each bedroom door, a fire alarm and fire doors, for example.

    Considerations for an HMO mortgage

    The HMO mortgage product that’s best for you will depend on your preferences. You may need the HMO finance quickly, for example, or prefer a higher LTV. Our specialist mortgage brokers will check your circumstances in detail and approach the lender most suited to your needs. They know which lenders offer the different HMO mortgage types, the ones that can process applications quickly and those that agree to higher LTVs. HMO mortgage rates vary between lenders and are based on your circumstances so that will also determine the products available. As well as that, you need to factor in the type of HMO mortgage valuation that will be carried out before choosing from the range of HMO mortgage products available.

    Our expert brokers will take everything into consideration and present you with the best HMO mortgage deals available. These will include exclusive HMO deals only offered by lenders through brokers.

    Boost your investment opportunities with an HMO mortgage

    At Trinity Finance, we’re here to help you realise your HMO investment goals. Whether you’re an experienced or first-time landlord, we’ll approach the right lender on your behalf and secure the best mortgage deal for your needs. As mentioned above, lenders often only promote HMO mortgages through brokers rather than on the open market. This means you can rest assured we have access to the latest deals. We have good relationships with flexible lenders who can provide bespoke solutions for your HMO mortgage, remortgage, refurbishment mortgage or development finance needs.

    Simply call us on 01322 907 000 to discuss your HMO investment requirements with one of our specialist mortgage brokers. We can offer advice on having an HMO mortgage in your name or via a limited company, special purpose vehicle (SPV) or limited liability partnership (LLP). We can also provide professional guidance on the legal requirements for HMO properties and your tax obligations as a landlord. As well as arranging your HMO mortgage, our financial experts can ensure that you have the correct insurance cover in place. If it’s out of office hours, send your HMO enquiry to us at or via our contact form. One of our mortgage experts will reply to you as quickly as possible with more information.


    Yes, although fewer HMO mortgage lenders offer them to borrowers without HMO experience, which limits your choice of mortgage product. Some lenders insist on general letting experience due to the complex nature of HMOs. This means you may need at least 1 year of experience in handling a buy-to-let investment if approaching certain lenders. When using the services of our specialist HMO mortgage brokers, your application will only be submitted to a lender accepting first-time landlords. This ensures your chances of approval for an HMO mortgage.

    It’s not always necessary to obtain HMO planning permission when converting a residential property to an HMO. Under the General Permitted Development Order (GPDO), which applies in England, a dwelling (class C3) can be converted into an HMO of up to six unrelated individuals (class C4) without planning permission. The exception to this is if an Article 4 direction applies to the area that the property is located in. This is when permitted development rights have been removed by the local council. In this case, you would need to apply for HMO planning permission.

    An HMO with more than six residents is considered to be a large HMO (sui generis). Permitted development rights don’t apply to large HMOs. This means you would have to apply for planning permission to change the use of a property from class C3 to a large HMO.

    Yes, we work with lenders offering HMO mortgages to borrowers with a low credit score or an adverse credit history. You may be more limited in your choice of HMO mortgage deals and not benefit from such competitive rates but you can still be approved for an HMO mortgage. Our mortgage brokers know which lenders to approach for this and can advise you on ways to improve your credit rating before submitting your application.

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