HMO – A House in Multiple Occupation

A House in Multiple Occupation (HMO) is a property let out to more than three tenants who aren’t from one family, where the tenants occupy private bedrooms but share communal rooms, e.g. the kitchen, bathroom and lounge. Think ‘flat share’ or ‘house share’, they are talking about an HMO property.

As a landlord, you can generally make a greater return from an HMO than you can by letting to a single household. You’ll be able to charge per bedroom and thereby charge more overall. However, to do this you’ll need a specialist HMO mortgage.

How are HMOs properties different?

HMOs are typically rented by students or young professionals, who may not be able to afford to rent a whole property by themselves. While it’s cheaper for a tenant to rent one room than an entire property, the combined rent of all the rooms is usually greater than could be charged to a single household. As a landlord then you can therefore achieve a higher overall income from a HMO property.

Naturally, these higher potential rewards come with higher risks. You’re more likely to have a higher turnover of tenants than with a traditional buy-to-let, and every extra tenant is another unknown factor (e.g. will they pay the rent? Will they cause damage? Will they trigger disputes?). You’ll also need a specialist mortgage.

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HMO mortgages

A HMO mortgage is a type of mortgage specifically for landlords who want to rent out their property to more than three tenants who aren’t from one household. These specialist type of buy-to-let mortgages have some key differences, such as:

• HMO properties usually require a licence granted by the local council 
• Landlords have to prove their experienced at managing buy to let’s already before taking one out
• Maximum Loan to value lending limits typically go up to 75%
• HMO mortgages tend to be more expensive, both in terms of interest and fees due to specialist nature of the property and tenants

The higher cost of a HMO mortgage and property may erode your returns. Therefore you should calculate in advance what those returns are likely to be and see whether the extra cost of an HMO property makes sense.

Lenders of HMO mortgages will also have specific requirements about the property itself. Some will specify that the property can have only one kitchen, or that the bedrooms/communal rooms need to be a certain size and some set a maximum number of floors in the property altogether. If you want to renovate the property before you let it out, you’ll need to find a lender who agrees to these works before you complete them. 

Who can apply for a HMO mortgage?

Most HMO mortgages are only available to experienced landlords, that’s typically defined by anyone who has rented out property for at least 12 months recently.

So if you’re a first-time landlord you will need help especially from your broker who can find a lender who is happy with you doing this as your first buy to let. That’s why typically most landlords start off with a traditional one household buy to let, to gain that experience before taking on a bigger project. 

Although lenders will take potential rental income into account during their stress test calculations, they’ll usually base their sums on the rental income you’d get from letting the property out to one household rather than individuals. Our mortgage brokers can advise you on how much you can borrow on a HMO mortgage which is affordable in your lender’s eyes.

Applying for HMO mortgage

Going through an independent mortgage broker such as ourselves will give you access to a wider comprehensive range of lenders, including more specialist lenders who can consider all types of properties and scenarios.