HMO Mortgages Explained: A Landlord’s Guide to Better Rates (2025)

HMO mortgage rates come with stricter requirements than conventional buy-to-let products. Yet their popularity keeps growing. Shawbrook’s buy-to-let business has seen HMOs jump from 27% in 2022-2023 to over a third (34%) in 2024. UK rents have also risen by 7.2% over the last year, making multi-tenant properties even more appealing.

Landlords who want to vary their property portfolio should understand how HMO mortgages work. These specialist loans are made for properties that house three or more unrelated tenants who share facilities. Lenders see them as higher risk, so they can be harder to get. Most lenders will offer up to 75% loan-to-value, and some specialists might go up to 80% for experienced landlords.

This detailed guide shows you everything about HMO mortgages. You’ll learn about qualification criteria, property requirements, and ways to get better rates in 2025.

Let’s understand the basics of Houses in Multiple Occupation (HMOs) before we head over to mortgage options. Here’s a breakdown of what makes an HMO and how these properties work in the rental market.

Definition of a House in Multiple Occupation

A House in Multiple Occupation is a property where at least three tenants live who aren’t related to each other and share facilities like toilets, bathrooms, or kitchens. The UK government calls properties “large HMOs” when five or more unrelated tenants share facilities.

This definition came from fire safety laws after deaths that could have been prevented in crowded buildings. Here are the tests that determine if a property is an HMO:

• The Standard Test: Looks at occupants from different households who share simple amenities like toilets, bathrooms, or cooking facilities
• The Self-contained Flat Test: Applies to flats where multiple households share facilities
• The Converted Building Test: Covers buildings turned into living spaces that aren’t fully self-contained

A household can be one person or a family living together. Family includes married or cohabiting couples (including same-sex relationships), relatives, half-relatives, step-parents, and step-children.

Key differences from single-let properties

HMOs are quite different from regular single-let properties in several ways:

Income Structure: Single-lets get rent from one tenant or family as a single monthly payment. HMOs have multiple tenants who each pay for their rooms, which creates different income streams. HMO investments usually bring in higher rental yields.

Operational Considerations:

• HMO landlords pay for utilities, internet, and sometimes cleaning
• These properties need more hands-on management with frequent maintenance and paperwork
• Tenants change more often than in single-lets, so you’ll need to market and screen new tenants regularly

Regulatory Framework:

• Most large HMOs need licences from local councils,
• Safety rules are stricter, especially for fire safety:
  • Each room needs smoke alarms
  • Buildings must have mains-powered fire alarms that connect
  • Every floor needs fire extinguishers

Financial Aspects:

• HMOs bring in more money but cost more to run with utilities, upkeep, insurance, and licencing fees
• You’ll need special lenders for HMO mortgages since standard buy-to-let products don’t usually cover these properties

Common tenant types in HMOs

Four main groups of tenants live in HMO properties:

Students are classic HMO tenants, especially in university towns. Today’s students want better quality housing than before. They usually:

• Look for housing in their second term (January-February) for next year
• Come in groups and want to sign one agreement together
• Don’t pay council tax if they study full-time
• Often handle their own bills, unlike other HMO tenants

Young Professionals are graduates with good jobs who like sharing homes for social and money reasons. These tenants:

• Often shared homes during university
• Can pay for and want nicer properties
• Work normal hours, which means less wear and tear during the day
• Take better care of properties than students

Working People/Blue Collar Workers are people with jobs in factories, shops, or similar places who might be new to shared living. These tenants:

• Create a steady demand but at lower rents
• Don’t usually need fancy accommodation
• Often includes couples looking to share

Local Housing Authority (LHA) Tenants get housing benefits and are always looking for places to live. They can be reliable, especially when councils pay landlords directly, but they might need more attention from landlords.

Knowing these tenant types helps landlords plan their HMO investments better and choose the right mortgage product for their needs.

Landlords must understand the legal aspects of property investment and know exactly when they need specialist financing. Property owners who think over multi-tenanted properties should know when they need an HMO mortgage to avoid substantial legal and financial problems.

Minimum tenant and household requirements

Your property’s occupancy determines if you need an HMO mortgage. You’ll need a specialist HMO mortgage if your property meets these criteria:

• It has at least three tenants from more than one household who share facilities
• The tenants use it as their main residence
• They pay rent or other consideration

A large HMO definitely needs mandatory licensing and a specialist mortgage when:

• It has five or more tenants from more than one household sharing facilities
• The property has three or more storeys in some cases

The definition changed in England over the last several years, which brought about 175,000 more shared homes into the licensing requirements. Before this change, mandatory licensing applied only to properties with three or more floors housing five or more tenants.

Note that a “household” means either one person or family members living together. This includes married couples, same-sex partners, relatives, half-relatives, and step-relations. Two unrelated friends who share would count as two separate households.

Shared facilities and tenancy agreements

Shared facilities are what make an HMO mortgage necessary. You’ll need this specialist financing when tenants share:

• Bathrooms
• Toilets
• Kitchen facilities

HMO properties usually work with one of these two arrangements:

1. Joint tenancy agreements – tenants sign one contract and share responsibility for rent and terms
2. Individual tenancy agreements – each tenant signs their own contract with the landlord and pays their portion of rent

Individual contracts work better for most HMO landlords, especially when tenants don’t know each other. This setup makes it easier to inspect common areas since tenants can only deny access to their rooms.

Lenders accept both single and multiple tenancy agreements for HMO mortgages. The type of agreement might affect how they value the property and assess rental income.

Legal implications of misusing the standard buy-to-let

Using standard buy-to-let mortgages for HMO properties has serious consequences:

• Breach of mortgage terms – regular buy-to-let mortgages don’t cover HMO properties
• Demand for immediate repayment – lenders can ask for full loan repayment if they find out about unauthorised HMO use
• Difficulty refinancing – lenders might reject mortgages that should have been HMO licences originally
• Financial penalties – running an unlicensed HMO can result in big fines
• Tenant compensation rights – tenants might get compensation if you operate without the required HMO licences

The expanded definition of licensable HMOs means more landlords now need proper mortgages. You should ask a mortgage broker who specialises in HMOs if you’re unsure about your property’s status.

Properties with three or fewer tenants usually don’t need an HMO licence. Notwithstanding that, local authorities might have additional licensing requirements for smaller HMOs, so check local rules.

HMO (Houses in Multiple Occupation) investments offer great financial opportunities for smart property investors who want to go beyond traditional buy-to-let arrangements. These multi-tenanted properties make financial sense even with higher specialist HMO mortgage costs.

Higher rental yields

HMO investments’ most important advantage lies in their superior profitability. Research shows HMOs consistently beat standard buy-to-let properties in rental yield. Data from Property Reporter shows UK HMOs generate about 8% average gross yield, while traditional buy-to-let properties only manage 6%. Excellion Capital’s research paints an even better picture – HMO investments deliver 10% average yield, twice what you’d get from regular buy-to-let properties at five or six percent.

The yields change quite a bit depending on where you look. You’ll get better percentage returns in areas where properties cost less to buy:

• North East: 12.5% average yield
• North West: 11.5% average yield
• Yorkshire and Humber: 11% average yield
• Manchester: 12.2% average yield
• Birmingham: 10.6% average yield

London HMOs give more modest returns at 6.6%, and the South East sits at 8.1%. These differences show how property prices and potential rental income balance out in different regions.

Flexibility in rent increases

HMO landlords can optimise their rental income better throughout the year. Single-let properties usually review rents yearly, but HMO landlords can adjust rents as individual tenants come and go on their separate contracts.

Each tenant’s different timeline lets landlords adjust rents more often when rooms become empty. UK rents went up 7.2% last year, according to Zoopla, and this flexibility helps landlords adapt faster to market changes. This setup helps boost income bit by bit, which really helps landlords who face rising mortgage payments.

Property size directly affects potential yields. Bigger HMOs make better returns – three-bedroom properties average 7.1% yields, four-bed HMOs reach 8.5%, and five to six-bed HMOs lead with 8.7% average yields across England.

Meeting tenant demand

The HMO market keeps growing steadily, creating excellent long-term investment potential. People want these properties more because housing costs keep rising, and they need flexible, affordable living options.

About 57% of tenants choose HMOs to cut their housing costs. This money-saving motivation keeps demand strong, even during tough economic times. Students especially love HMO accommodation – StuRents data reveals 77% of British students pick HMOs over Purpose Built Student Accommodation.

The UK’s HMO market includes 182,533 properties worth £78 billion and generates £6.3 billion yearly in rent, according to ONS estimates. These numbers show how well-established this sector has become.

Shared utility costs

HMO investments come with a practical money-saving benefit in utility cost management. Most HMO landlords include utilities in an all-inclusive rent package, which works well for everyone.

Tenants love having one predictable monthly payment instead of juggling multiple bills. This makes HMOs with all-inclusive bills worth more, leading to better yields. The shared cost model also encourages everyone to watch their energy use since it affects the whole house.

Landlords can get better deals from utility suppliers by managing everything centrally. They can also make energy-saving improvements across the property more easily. This helps during empty periods when landlords must pay utility bills anyway.

Higher HMO mortgage rates haven’t stopped more investors from choosing this specialist property investment area. The financial benefits make too much sense to ignore.

Related reading:

• Buy To Let Stress Test
• Buy To Let Mortgage Broker UK
• How much can I borrow for a buy to let
• Buy To Let Mortgage Eligibility
• Requirements For Buy To Let Mortgages

Getting an HMO mortgage means meeting strict criteria that go beyond standard buy-to-let requirements. Lenders see HMOs as riskier investments because they need more complex management. Empty periods can also affect rental income.

Borrower experience and credit profile

HMO mortgage providers prefer lending to experienced landlords. Most lenders want applicants with 12-24 months of landlord experience, especially those who know how to manage shared housing. New landlords face a tougher time because mainstream lenders are hesitant to finance their HMO projects.

In spite of that, the market hasn’t shut out first-time landlords completely. Some specialist lenders work with those who lack experience, though their conditions are stricter. New property investors should:

• Have a strong business plan ready
• Show steady income or relevant property management experience
• Think about hiring a letting agent
• Be ready to pay higher interest rates due to risk

Credit history matters a lot to HMO lenders who look for clean credit profiles. Some specialist lenders might work with minor credit issues from the past. Recent credit problems usually lead to rejected applications or much higher rates. This careful approach shows how cautious lenders are with multi-occupancy properties.

Mortgageable offers a free Equifax Credit Report as part of its service, with no obligation to proceed. Something worth considering.

Minimum deposit and income requirements

HMO mortgage deposits are bigger than standard buy-to-let investments. Lenders usually ask for 25-35% of the property’s value as a minimum deposit. Some specialist providers might take 15%, but they charge higher interest rates.

The typical deposit requirements look like this:

• 25% as the standard amount
• 15-20% with specialist lenders for smaller HMOs
• 25-40% for bigger HMOs with six or more bedrooms

Income requirements change from lender to lender. Many banks want applicants to earn around £25,000 yearly outside their rental income. This extra income helps ensure landlords can pay their mortgage during empty periods.

Lenders usually accept these deposit sources:

• Personal savings (you’ll need proof)
• Gifts from close family
• Money from other properties

Personal loans won’t work as deposits. Limited companies might use inter-company loans if ownership structures match.

Age and term limits

Age limits play a vital role in HMO mortgage criteria. Key points include:

• Minimum age: Usually 21, some specialist lenders accept 18
• Maximum age when applying: Usually 70-80 years, some cap at 74
• Maximum age at mortgage end: Varies by lender

Experienced landlords often get more flexible terms with lower loan-to-value products. Some lenders drop the maximum age rule for experienced landlords borrowing at 65% LTV or less. Others stick to 80-85 years at the mortgage end, depending on the property.

Mortgage terms run from 5-35 years, and interest-only options are easy to find. Older borrowers might get shorter maximum terms.

A full picture of these criteria before applying can help you get better HMO mortgage rates. Finding the right lender for your situation saves time and prevents disappointment.

Your property’s physical features are vital in getting an HMO mortgage approved. Lenders take a close look at properties before they approve financing. Each financial institution has its own set of requirements.

Minimum property value and EPC rating

Most HMO mortgage providers need properties worth at least £100,000. This minimum value gives lenders enough security, though it varies by region. London and other high-value areas need much higher values. Some specialist lenders might look at properties worth £75,000 in specific locations.

Energy efficiency is another key factor. HMO properties need a valid Energy Performance Certificate (EPC) rated ‘E’ or better. Unlike regular buy-to-let properties, most lenders won’t accept any exemptions for HMOs. This strict rule comes from both regulations and business needs.

Properties with better energy ratings (A-C) might get lower interest rates through ‘green’ HMO mortgage products. This trend has grown since green buy-to-let mortgages first appeared in 2021. Lenders now focus more on sustainability, and landlords can save on utility costs.

Missing the required EPC rating can lead to serious problems:

• You can’t let the property
• Local authorities will send compliance notices
• You might face fines up to £5,000

Maximum number of rooms and storeys

Lenders set limits on room numbers and building height. Most mainstream HMO mortgage providers allow:

• Up to 8 bedrooms
• Up to 4 habitable storeys[224]
• One kitchen only
• A communal living space[223][224]

Lenders want a communal living area because it helps create shared homes instead of separate bedsits. Some lenders accept large open-plan kitchen/living rooms if they’re big enough for all residents.

Standard HMO mortgage providers usually reject properties with multiple self-contained units under one title. Buildings bigger than these limits need commercial financing instead of residential HMO products.

Leeds Building Society separates small and large HMOs by occupant numbers, not bedroom count. They say a six-bedroom property with six occupants is a small HMO, but the same property with eight occupants becomes a large HMO.

Licencing and planning documentation

Getting the right licence is basic for HMO mortgage approval. Large HMOs (with five or more unrelated tenants) must have mandatory licensing under the Housing Act 2004. Many local authorities now require licences for smaller HMOs too.

Mortgage applications have specific licensing needs:

• Remortgage applications: You need a current, valid licence
• Property purchases: Proof you’ve applied for the relevant licence
• Converting residential to HMO: Evidence of your licence application

Buying a property to turn it into a licensed HMO often needs bridging finance first. Many HMO lenders won’t give mortgages until work is done and you’ve applied for licensing. You can switch to a standard HMO mortgage after conversion.

Planning permission adds more steps. Article 4 Directions in many areas mean you need special permission to change family homes into HMOs. Most places require planning permission and building control approval for all new HMOs.

These property requirements and borrower criteria explain why HMO mortgages cost more than standard buy-to-let loans. But landlords who prepare well and have the right properties can access the higher yields that HMO investments usually bring.

Financial aspects of HMO lending directly affect your borrowing capacity. Learning these calculations helps you evaluate property investments and create solid financing plans.

Typical loan-to-value (LTV) ratios

HMO mortgage providers usually limit lending to 75% of the property’s value. You’ll need to put down at least 25% as a deposit. Standard buy-to-let mortgages often come with higher LTV ratios.

A few specialist lenders might stretch to 80% LTV for seasoned landlords. This isn’t common practice though. Bigger deposits usually lead to better interest rates. Finding the sweet spot between deposit size and cash flow becomes key.

HMO mortgage loans range from £50,000 to £1 million or more. Most lenders set £100,000 as the minimum property value. This threshold helps them reduce risk and maintain sufficient security against their lending.

Interest coverage ratio (ICR) explained

Interest Coverage Ratio is a vital metric in HMO mortgage underwriting. This ratio shows how well your rental income covers mortgage interest payments. It compares your expected rental income against mortgage interest costs.

HMO properties need an ICR between 150-175%. Your rental income should be 50-75% higher than mortgage interest payments. Let’s say your monthly interest payments are £1,000. You’d need rental income between £1,500-£1,750.

The Mortgage Works wants an ICR of 175% for all HMO applications, whatever your tax status. Leeds Building Society asks for at least 165%. These higher ratios reflect the extra costs of maintaining and managing HMOs compared to standard buy-to-let properties.

Stress testing rental income

Lenders run thorough stress tests beyond ICR requirements. They want to make sure your investment stays viable if interest rates go up. They calculate affordability at higher notional rates—usually 5.5% or above, whatever rate you actually pay.

Here’s a real example: A £300,000 HMO mortgage at 5.5% stress rate with 175% ICR needs annual rental income above £27,562 (£300,000 × 5.5% × 175%).

The stress test factors in empty periods, management fees, and upkeep costs. Higher-rate taxpayers face tougher ICR requirements up to 170%. Basic-rate taxpayers need 125%. This difference reflects how tax relief changes affect landlords’ profits.

These careful financial checks explain why getting HMO mortgages isn’t easy. They protect everyone involved from financial strain in this profitable but complex property sector.

Getting finance for HMO properties comes with unique challenges when compared to standard buy-to-let mortgages. These obstacles explain why you’ll find fewer lenders offering HMO products at higher interest rates.

Higher perceived risk by lenders

Lenders see HMOs as higher-risk investments that need stricter lending criteria. This view shows up in several key restrictions:

• Higher interest rates than standard buy-to-let products
• Lower loan-to-value ratios that require deposits of 25% or more
• Stricter limits on property portfolio sizes

This careful approach comes from tenant dynamics. HMOs house unrelated individuals who move more often than families in single rentals. These tenants tend to care less about property upkeep, which makes it harder to pin down who caused any damage. All these factors create real uncertainty about stable rental income over time.

Licencing and compliance costs

HMO regulations have become much stricter, with substantial compliance requirements. You’ll need to handle:

• Mandatory licensing for properties with five or more unrelated tenants
• Licence applications that cost £500-£1,500 and need complete property inspections
• Specific minimum room sizes and kitchen/bathroom ratios

Breaking these rules can lead to fines of up to £30,000. New HMO investors often don’t realise these expenses add substantially to setup costs compared to standard properties.

Management complexity and void periods

HMOs need much more attention than traditional rentals. The biggest challenges are:

• High tenant turnover creates ongoing marketing and vetting work
• Faster wear and tear because more people live there
• More frequent cleaning, inspections, and maintenance needs
• Tenant conflicts that need landlord intervention

Empty rooms remain a real concern. Even though having multiple rooms provides some protection against complete income loss, void periods have increased from 22 to 24 days on average across England. This means landlords lose about £1,085 per void period—a 19% increase in just one year.

Securing competitive financing for multi-occupancy properties needs specialised knowledge and resources. Several tools can help you streamline the process when you look for suitable HMO mortgage products.

Top lenders offering HMO mortgages

The HMO market currently has around 30+ active lenders. Major players include Aldermore, Foundation Home Loans, Kent Reliance, Landbay, Leeds Building Society, LendInvest, Paragon Bank, Precise Mortgages, and The Mortgage Works. Most lenders cap their loan-to-value ratios at 75%, though Kent Reliance stands out by offering up to 85% LTV on select products. The minimum loans usually start between £25,000 and £100,000. Maximum amounts range from £1 million to £3 million, depending on your chosen lender.

Using an HMO mortgage calculator

HMO mortgage calculators are a great way to get quick estimates of your potential monthly repayments and compare different financing options. These tools work best when you input specific details about your situation. You’ll need to provide the borrowing type (purchase/remortgage), property value, loan amount, term length, and repayment basis. The calculator shows interest rates, monthly costs, and related fees.

Important: These calculators offer indicative figures only, not guaranteed rates.

Working with a specialist broker

Many HMO mortgage deals remain exclusive to brokers. A specialist advisor can make a significant difference to your application process. Regular mortgage brokers handle HMO applications as just 3% of their business. Dedicated HMO brokers, however, focus almost entirely (97%+) on this market. Their expertise shows in the processing times – they often complete applications in 48-72 hours, while general brokers might take 2-4 weeks.

HMO investments are a great chance for landlords to get better rental yields. This piece shows how these properties give average returns of 7.5% compared to just 3.6% for standard buy-to-let investments. Such a big difference explains why HMOs now make up over a third of some lenders’ buy-to-let business.

Getting an HMO means dealing with a more complex financial world. Most lenders won’t go above 75% LTV and want lots of landlord experience. They also have stricter stress testing rules than standard buy-to-let products. On top of that, licencing and safety rules add more complexity that affects your financing options.

HMO mortgages are still available to landlords who come prepared. Success comes from knowing exactly when you need specialist financing and making sure your property fits what lenders want. Working with specialist brokers gives you a much better shot at good rates, especially since many of the best deals only come through brokers.

Landlords can raise rents as individual tenancies end and spread risk across multiple tenants. This makes HMOs tough during shaky economic times. The numbers look even better in places like the North East and North West, where yields can hit 12.5% and 11.5%.

You should research local licensing rules before jumping into an HMO investment. Understanding your area’s tenant demographics and working out real yields after higher management costs and empty periods is crucial. This homework will help when you talk to lenders about mortgage terms.

HMO mortgages might look scary compared to regular buy-to-let products at first. They open doors to what might be the most profitable part of the rental market. Smart planning and the right financing approach could mean your HMO investment beats traditional single-let properties for years to come.

Understanding HMO mortgages is crucial for landlords seeking higher returns, as these properties deliver significantly better yields than standard buy-to-let investments whilst requiring specialist financing.

• HMOs generate average yields of 7.5% compared to just 3.6% for single-let properties, with some regions achieving returns exceeding 12%

• You need an HMO mortgage when housing three or more unrelated tenants sharing facilities – using standard buy-to-let finance risks, loan recall

• Most lenders require 25% deposits and 150-175% interest coverage ratios, making HMO mortgages harder to secure than standard products

• Properties must meet strict criteria, including a minimum £100,000 value, an EPC rating ‘E’ or better, and appropriate licencing documentation

• Working with specialist brokers dramatically improves your chances of securing competitive rates, as many best deals remain broker-exclusive

The higher barriers to entry reflect genuine complexities around licensing, management, and tenant turnover, but these challenges are offset by the superior financial returns available to well-prepared landlords who understand the requirements.