HMO Mortgages

What constitutes a House in Multiple Occupation (HMO)?

The UK government defines HMOs in the following way:

“A House in Multiple Occupation (HMO) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen.”

This is in contrast to what is designated to be a ‘normal’ household: one that typically houses multiple people from the same family.

There’s no upper limit on the number of people than can live in one HMO.

What is an HMO mortgage?

An HMO is a type of mortgage for buildings that contain multiple tenants that do not belong to the same family. HMO stands for “House in Multiple Occupation”, also known as a “house share”.

HMO mortgages are a popular choice for landlords. That’s because the gross yearly income from HMO tenants is usually higher than a standard buy-to-let property. Meanwhile, many tenants prefer HMO rent agreements because it is often more affordable than living alone.

Do you need an HMO licence?

An HMO licence is a legal document provided by the local council that allows you to collect rent from an HMO property. While you must have a valid HMO licence if you’re renting out a large HMO, you may not be legally required to have one for a smaller HMO, depending on your local authority.

You’ll know if your property is a large HMO if it meets all of the following criteria:

• it is rented to 5 or more people who belong to more than one ‘household’
• some or all tenants share bathroom or kitchen facilities
• at least 1 tenant pays rent (or their employer pays it for them)

You will need a separate licence for each large HMO property you run. Landlords can be issued an unlimited fine for renting out an unlicensed HMO.

How much does an HMO licence cost?

HMO licence costs differ between councils. Here are some examples of what you might expect to pay in different cities around the UK.

You can visit the HMO Services website to learn more about licence costs in your area.

How to apply for an HMO licence

To apply for an HMO licence, you’ll need to get in touch with the housing branch of your local council.

To be eligible for an HMO licence, there are certain criteria you need to meet first:

• The property must be suitable for the number of occupants you intend to house (e.g. number of bathrooms, bedrooms and available facilities)
• You must have no criminal record or have breached landlord laws or codes of practice in the past

The council will also require you to supply a number of documents to prove that your HMO is safe and suitable for living in. Some of the documents they might request include:

• A floor plan of the property
• A copy of the current gas safety certificate (reviewed annually)
• A copy of the fire alarm test certificate
• A valid electrical test certificate

Once you’re issued your HMO licence, it will be valid for up to five years. After this time, you’ll need to apply for a new HMO licence for your property.

How to get an HMO mortgage

To get an HMO mortgage, you’ll need to apply for one through an HMO mortgage lender. Most buy-to-let lenders can only be accessed through a broker like Positive Commercial Finance.

The application process itself is similar to a standard mortgage. However, your broker will ask you some additional questions to make sure you meet the criteria specified by our lenders — and to find the best HMO mortgage rates for you.

During your HMO mortgage application, you may be asked about the following:

• The number of rooms in your HMO
• Its location
• Your previous experience as a landlord
• Whether the property has a licence (or needs one)
• Your expected rental income
• Types of tenants you’ll be housing (age, marital status, occupation, etc.)
• How much you need to borrow
• Your credit rating
• Who will be managing the property (i.e. you or a managing agent)

Should you succeed in your application, you’ll typically be notified within a two-month period. Please be aware that some applications may take longer to process.