What is an HMO?

HMO stands for a House in Multiple Occupation and is a term used to define a property rented out by at least three individuals who are not from the same household and share toilet, kitchen and bathroom facilities. 

Sometimes called a flat or house share, this type of housing solution is a popular option among students and individuals in low paid work looking for more affordable accommodation or the opportunity to live with more people. HMOs are also appealing to people who live in areas where rental prices are high. 

Why are HMO properties attractive for landlords? 

The potential higher rental yield makes HMO properties very attractive for landlords and investors, even though there is more legislation and they require more upkeep and admin work. Not forgetting that HMOs attract multiple renters, meaning landlords collect rent from at least three tenants and are in a more secure position if one tenant moves out. 

Some landlords might purchase an HMO in an area where they cannot currently afford to live as a way of securing a family home for the future. They rent out the property to tenants for as long as it takes to pay off the mortgage or be in a comfortable position to move, then convert it back to a single dwelling house for their family. 

How can I finance an HMO property purchase? 

You will need an HMO mortgage. This type of mortgage is specifically for landlords who want to rent out their property to at least three tenants who are not part of the same household. A traditional buy-to-let mortgage will not allow you to rent out your property to multiple individuals, so you must source lenders who specialise in HMO mortgage products. 

Do HMO properties require a license? 

Some do, but not all of them. Local councils are responsible for issuing HMO licenses, which are required for large HMO properties in England and Wales. HMO licenses are valid for a maximum of 5 years and must be obtained for each property (not for each landlord) that falls within the licensing criteria. 

A property is defined as a large HMO if all of the following apply:

• Five or more people who form more than one household rent the property
• Your tenants share toilet, bathroom or kitchen facilities
• At least one tenant or their employer pays rent 

You may still need a license if you have a small HMO depending on your local council requirements, so you must check with your council to avoid costly fines. 

How easy is it to get an HMO mortgage?

Not all lenders accept HMO properties, but there are plenty of lenders out there that do. You also need to be aware that many lenders will prefer you to have landlord experience before offering you an HMO mortgage. However, each lender has its own criteria, and some lenders will consider first-time landlords with no experience but will probably want you to use a letting agent to manage the property, rather than manage it yourself.  

Since HMO properties are a specialist type of letting, HMO mortgage rates are typically higher than traditional buy-to-let mortgages. You also need to put down a substantial deposit of at least 25% of the purchase price to secure an HMO mortgage. The amount you can borrow is usually linked to the rental income you expect to get from the property. If you have zero experience in letting property, the rates lenders offer you will likely be higher than average.

Do HMO mortgage lenders have strict lending criteria?

As we mentioned before, each HMO mortgage lender has its own set of criteria when deciding whether you qualify for financing. 

The majority of HMO mortgage lenders tend to base their eligibility criteria on several factors, including:

• Your experience as a standard or HMO landlord 
• The Property value
• The amount you want to borrow 
• Expected rental income from the property
• The number of bedrooms in the property
• Whether the property requires a license
• If you hold the property in your name or a company name

Although some lenders are more lenient in criteria than others, all lenders will look at your age, income and credit history to make sure you meet basic qualifying criteria.

How do I get the best rate on an HMO mortgage? 

Finding an HMO mortgage for your property with the most competitive rates is crucial to achieving a good long-term return on your investment, so it pays to shop around and compare what each lender offers you. Unsure where to start? Comparing HMO mortgage lenders and rates is quick and easy when you use our intelligent matching platform. 

Here at Pitch 4 Finance, we understand how much time and effort it takes to find the right HMO finance, and that is the reason we developed an easy-to-use platform that compares the best lenders within seconds. Our platform matches you with all the lenders who fit your requirements to make the process of finding the best rates as simple as possible. 

To source the most suitable HMO mortgage for you and access the best rates, you only need to create a loan enquiry using the built-in form on our site. You can then review loan offers and chat with lenders about your finance options.

If you want to know more about sourcing HMO mortgages or how the Pitch 4 Finance platform works, you can use our live online chat service or call us on 0800 7723 180.