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Getting HMO mortgages

Navigating the world of HMO mortgages for House in Multiple Occupation can be complex. With the potential for higher yields but an equally increased level of management and regulatory consideration, it’s critical to thoroughly understand this unique sector of the market.

In this guide, we’ll cover everything you need to know about HMO mortgages. From understanding what an HMO is and the advantages and drawbacks of investing in them to the intricacies of securing an HMO mortgage, we’ll ensure you’re armed with the essential knowledge.

What is an HMO mortgage?

An HMO mortgage is a type of mortgage that is used to finance a House in Multiple Occupation (HMO).

An HMO mortgage is different from a standard residential mortgage. This is because HMOs are considered a higher risk by lenders due to factors such as increased wear and tear, the potential for vacancies between academic terms (if students are the primary tenants), and the increased regulatory burden of managing an HMO. Therefore, HMO mortgages may come with different lending criteria, including higher deposit requirements and potentially higher interest rates. The potential rental income from the property is often a key factor considered by lenders when deciding whether to grant an HMO mortgage.

As with all types of mortgages, it’s important to get expert advice before proceeding with an HMO mortgage to understand all the responsibilities and potential risks.

What is an HMO?

An HMO, or House in Multiple Occupation, is a specific type of rental property in the UK. The term refers to a property where multiple tenants, who are not part of the same family or household, live together and share facilities such as the kitchen and bathroom.

Here are the specific criteria, as per the Housing Act 2004 in the UK, for a property to be considered an HMO:

    • At least three tenants live there, forming more than one household.

    • The toilet, bathroom, or kitchen facilities are shared.

There’s also a subset of HMOs known as “large HMOs.” A large HMO meets the following criteria:

    • It’s at least three stories high.

    • At least five tenants live there, forming more than one household.

    • The toilet, bathroom, or kitchen facilities are shared.

HMOs require a license from the local council, and the owner of the property must meet certain standards and obligations to ensure the safety and well-being of the tenants. This can include providing safety certificates, installing smoke alarms, and ensuring that shared areas and facilities are kept clean and in good condition.

When do you need an HMO mortgage?

You need an HMO mortgage when you are planning to buy a property that will be used as a House in Multiple Occupation (HMO). An HMO is a property that is rented out to at least three tenants who are not part of a single household (i.e., they are not a family) but share facilities such as a bathroom and kitchen. Examples of HMOs are properties rented to students, professionals sharing a house, or bedsits.

If you intend to purchase such a property, a standard residential mortgage typically won’t be suitable because most lenders see HMOs as being higher risk. The reasons for the increased risk include the higher likelihood of property damage due to more tenants, the potential for periods of vacancy, and increased management and regulation burdens.

Therefore, lenders offer specific HMO mortgages that take into account these risks. These mortgages often have different terms and conditions compared to standard residential mortgages. For instance, they might require larger deposits, charge higher interest rates, and assess the potential rental income from the property when deciding whether to approve the loan.

It’s also worth noting that if you have a property with a standard mortgage and then decide to convert it into an HMO, you would typically need to switch to an HMO mortgage, as your existing mortgage likely won’t permit this kind of change of use.

How to get an HMO mortgage

Getting an HMO mortgage in the UK involves several steps. The exact process can vary depending on the lender and your personal circumstances, but the general steps are as follows:

Research: Start by familiarising yourself with the terms, conditions, and requirements of HMO mortgages. Understand what HMO mortgages are, how they work, and the responsibilities they entail. Research potential lenders, including their interest rates, fees, and reputation in the market.

Property selection: Identify the property you want to purchase. Remember, for a mortgage to qualify as an HMO mortgage, the property must meet the definition of an HMO: it must be rented out to at least three tenants forming more than one household and have shared toilet, bathroom, or kitchen facilities.

Financial review: Make sure your financial situation is in order. This means having a good credit history, being able to provide proof of income, and having a sufficient deposit (usually higher for HMO mortgages than standard mortgages). Lenders will look at these factors during their assessment.

Get professional advice: It may be useful to speak with a mortgage broker or financial advisor who specialises in HMO mortgages. They can guide you through the process, help you understand the terms and conditions, and suggest lenders that might be suitable for your situation.

Apply: Once you have identified a suitable lender, you can apply for the mortgage. The application process will involve providing a lot of information about your finances, the property, and how you plan to manage it. The lender will then assess the application, which may include valuing the property and checking your credit history.

Mortgage offer: If your application is successful, the lender will issue a mortgage offer outlining the terms of the loan. If you’re happy with the offer, you can accept it, and the lender will release the funds to complete the purchase.

How do HMOs differ from traditional buy-to-let properties?

Houses in Multiple Occupation (HMOs) and traditional buy-to-let properties are two different types of rental properties, and they come with different regulations, financial considerations, and landlord responsibilities.

Here are some key differences:

Tenant arrangement: A key difference is the tenant arrangement. In a traditional buy-to-let property, the property is usually rented out to a single household – either a family, a couple, or a single individual. On the other hand, an HMO is rented out to at least three people who are not part of the same household but share facilities like the kitchen or bathroom.

Licensing: HMOs often require a license from the local council, particularly for larger HMOs. To get a license, the property must meet certain safety standards, and the landlord must show that they are a ‘fit and proper’ person. Traditional buy-to-let properties do not typically require a license.

Regulations: HMO landlords are subject to more regulations than traditional buy-to-let landlords. These can include requirements for fire safety measures, minimum room sizes, and the provision of cooking and washing facilities.

Financial considerations: Financially, HMOs can often generate a higher rental income than traditional buy-to-lets, as rent is charged per room, not for the property as a whole. However, the start-up and running costs can be higher due to licensing fees, higher utility usage, and increased wear and tear. HMOs often require a larger deposit and have higher interest rates than traditional buy-to-lets due to the perceived increase in risk from the lender’s perspective.

Management: HMOs can require more active management than traditional buy-to-lets. With more tenants in the property, there can be more maintenance issues to deal with, and relationships between tenants can sometimes cause problems.

Mortgages: If you’re buying a property to use as an HMO, you’ll likely need a specific HMO mortgage. If you’re buying a traditional buy-to-let property, you’ll need a buy-to-let mortgage. Lenders usually consider HMOs to be higher risk, so the lending criteria may be stricter.

Each type of property investment has its own advantages and disadvantages, and what works best will depend on your circumstances, resources, and investment goals.

How do HMO mortgages work?

HMO mortgages are specifically designed for properties that are Houses in Multiple Occupation (HMO). An HMO is a property rented out by at least three people who are not from one ‘household’ (for example, a family) but share facilities like the bathroom and kitchen. Common examples are student housing or shared housing for professionals.

Here’s how HMO mortgages work:

Application: Similar to standard mortgages, you apply for an HMO mortgage with a mortgage lender. This could be a bank, building society, or a specialist mortgage lender. As part of your application, you will need to provide financial information about yourself (or your company if the property is being bought through a company), details about the property, and your plans for renting it out.

Deposit: HMO mortgages usually require a larger deposit compared to a standard residential mortgage. This is because lenders view HMOs as a higher risk due to the increased wear and tear from multiple occupants and potential periods of vacancy. The exact deposit required can vary, but it’s typically around 25-30% of the property’s value.

Interest rates and fees: The interest rates and fees associated with HMO mortgages can also be higher than standard mortgages due to the perceived increased risk. This can vary greatly between lenders, so it’s worth shopping around for the best deal.

Affordability assessment: Lenders will carry out an affordability assessment. This is to ensure you can afford to repay the mortgage. For an HMO mortgage, this assessment often includes a review of the potential rental income from the property. Each lender will have their criteria for this.

Property valuation: As part of the application process, the lender will conduct a valuation of the property to determine its market value and rental potential. This helps the lender decide whether to approve your mortgage application.

Mortgage approval: If your application is successful, the lender will provide a mortgage offer. This document outlines the terms of the mortgage, including the loan amount, term, interest rate, and repayment details. Once you accept the offer, the funds will be released for the purchase of the property.

An HMO property comes with additional responsibilities, such as licensing requirements and certain standards that must be met for the safety and well-being of the tenants. Be sure to understand these responsibilities before applying for an HMO mortgage.

What are the different types of HMO mortgages?

As with other kinds of mortgages, there are several different types of HMO mortgages available in the UK. They can be categorised based on several factors, such as the repayment type, interest type, and the type of buyer. Here are some key categories:

Repayment type:

Interest-only mortgages: With this type of mortgage, you only pay the interest on the loan each month. The principal loan amount remains the same and is repaid at the end of the mortgage term, often through selling the property or refinancing.

Repayment mortgages: With a repayment mortgage, your monthly payments go towards both the interest and the principal loan amount. This means you are gradually paying off the loan over the term of the mortgage.

Interest type:

Fixed-rate mortgages: For a fixed-rate mortgage, the interest rate is set at a certain level for an agreed period, typically 2, 3, or 5 years. This means your payments remain the same during this period, providing certainty over your costs.

Variable rate mortgages: With a variable rate mortgage, the interest rate can change, usually in line with the Bank of England base rate or the lender’s standard variable rate (SVR). This means your monthly payments can go up or down.

Tracker mortgages: Tracker mortgages follow the Bank of England base rate plus a pre-agreed margin. If the base rate changes, your mortgage rate will change by the same amount.

Buyer type:

Individual mortgages: These are for individual private buyers looking to invest in an HMO property.

Limited company mortgages: These are for those buying an HMO through a limited company, often set up for the purpose of property investment (known as a Special Purpose Vehicle, or SPV).

Specialist HMO mortgages: Some lenders offer mortgages specifically tailored for larger HMOs or “complex” HMOs. These may have different lending criteria and may be able to accommodate more unusual property types or tenant arrangements.

Please note that the terms and conditions, including the interest rate and fees, can vary widely between lenders and between different mortgage products. It’s important to carefully consider your options and potentially seek advice from a mortgage broker or financial advisor with experience in HMO mortgages.

How much can I borrow?

The amount you can borrow for an HMO mortgage will depend on a number of factors, including:

Rental income: One of the most significant factors is the rental income the property is expected to generate. Many lenders will require that the rental income is at least 125-145% of the mortgage repayments. They use this as a way to ensure that you’ll be able to cover the mortgage repayments, even if there are periods when not all rooms are rented out.

Your income: Some lenders will also consider your personal income and other financial commitments when determining how much you can borrow. This can help to provide additional assurance that you can afford the mortgage repayments.

Loan-to-value (LTV): The LTV ratio represents the amount of the loan compared to the value of the property. For HMO mortgages, lenders typically offer a maximum LTV of around 75-80%, meaning you would need a deposit of at least 20-25% of the property’s value.

Property value: The property’s value is also a determining factor. Most lenders have a minimum and maximum property value for which they will provide a mortgage.

Credit history: Lenders will also consider your credit history. If you have a poor credit history, it may limit the amount you can borrow, or you may face higher interest rates.

Experience: If you have prior experience as a landlord, particularly with HMO properties, you may be able to borrow more as you pose less of a risk to the lender.

These factors can vary significantly between different lenders, and some may have additional criteria. It’s a good idea to speak to a mortgage broker or financial advisor to understand how much you may be able to borrow based on your individual circumstances.

How much deposit is typically required for an HMO mortgage?

Typically, for an HMO mortgage, a lender will require a larger deposit compared to a standard residential mortgage. This is due to the perceived higher risk associated with HMO properties, considering factors like increased wear and tear from multiple occupants, potential vacancy periods, and additional regulatory requirements.

The deposit required for an HMO mortgage is often around 25-30% of the property’s value, although this can vary depending on the lender and the specific circumstances.

However, some specialist lenders or mortgage products might require a larger deposit, potentially up to 40%. On the other hand, if you have a strong financial profile and a proven track record as a landlord, some lenders might accept a lower deposit.

Keep in mind that the deposit is not the only factor that lenders will consider. They will also look at the expected rental income from the property, your personal income and credit history, and potentially other factors.

What are the advantages and disadvantages of HMO mortgages for property investors?

For property investors, HMO (House in Multiple Occupation) mortgages can present both benefits and challenges. Here’s a rundown of some of the key advantages and disadvantages:

Advantages of HMO Mortgages:

Higher Rental Yields: HMOs can yield higher rental income compared to traditional buy-to-let properties. This is due to multiple rent payments from individual tenants, which can help you maximise income from your investment.

Risk diversification: With multiple tenants in the property, you’re less likely to have the property entirely empty at one time. If one tenant leaves, you’ll still have income from the others. This can help to spread your risk and ensure a more consistent income stream.

Potential for property value increase: If you manage the HMO well and it becomes a successful business, it could potentially increase the property’s value over time.

Disadvantages of HMO Mortgages:

Increased regulation and licensing: HMOs are subject to more regulations than traditional rental properties. They often require a license from the local council and must meet specific safety standards. Non-compliance can result in hefty fines.

Higher operating costs: With multiple tenants, wear and tear, and potentially more maintenance issues can arise, increasing the costs of running the property. Regular upkeep of common areas and dealing with a higher turnover of tenants can add to the expense.

Higher mortgage rates: As HMOs are seen as a higher risk by lenders, interest rates for HMO mortgages can be higher than those for standard buy-to-let mortgages.

More management time and effort: Managing multiple tenants and maintaining the property to HMO standards can be time-consuming. You may need to handle more tenant issues and deal with a higher turnover.

Difficulty in financing: It can be more challenging to secure an HMO mortgage. Some lenders may not offer HMO mortgages at all, while others may require a larger deposit or have stricter eligibility criteria.

When considering an HMO investment, it’s crucial to weigh these factors, conduct thorough market research, and consider seeking advice from property and financial experts. This helps to ensure that your investment aligns with your financial goals and risk tolerance.

What are the average interest rates?

Interest rates for HMO (House in Multiple Occupation) mortgages can vary significantly based on a range of factors, including the lender, the loan-to-value (LTV) ratio, the expected rental income, your credit history, and whether an individual or a limited company is taking out the mortgage.

Interest rates for HMO mortgages typically range from around 5% to 8%. However, it’s crucial to note that rates can change over time due to fluctuations in the broader economic and financial environment. Rates might also be higher if the property is a large or complex HMO or if the borrower is considered a higher risk.

Lenders will also often charge additional fees, such as arrangement or booking fees, valuation fees, and potentially others. The overall cost of the mortgage will depend on both the interest rate and these additional fees.

How is affordability calculated on an HMO mortgage?

Affordability on an HMO (House in Multiple Occupation) mortgage is generally calculated based on the expected rental income from the property. This is different from a standard residential mortgage, where affordability is typically based on the borrower’s personal income.

As mentioned, most lenders will require that the rental income is at least 125% to 145% of the mortgage repayments, although this can vary between lenders. This calculation is typically based on a nominal interest rate specified by the lender, which might be higher than the actual mortgage rate. This is to ensure that you would still be able to cover the mortgage repayments if interest rates were to rise in the future.

For example, if your mortgage repayments were £1,000 per month, the lender might require a rental income of at least £1,250 to £1,450 per month (125% to 145% of the mortgage repayments).
The rental income is usually assessed based on a professional valuation of the property, which will estimate the potential rental income from each room. The valuation will consider factors like the size and condition of the rooms, as well as local rental market conditions.

Lenders will also consider other factors in assessing affordability, such as your personal income, other financial commitments, and your credit history. If you’re taking out the mortgage through a limited company, the lender may also consider the company’s financial position.

Is there a maximum number of rooms a property can have for an HMO mortgage?

There’s no absolute maximum number of rooms that a property can have for an HMO (House in Multiple Occupation) mortgage, but the number of rooms can affect the mortgage terms, and some lenders may have limits.

Many lenders may have a preferred range, often up to six or eight bedrooms. Some might provide mortgages for larger HMOs with more rooms, but these are often considered specialist cases and may come with stricter lending criteria or higher interest rates.

Furthermore, HMOs with a certain number of rooms (depending on local council regulations, often 5 or more) may require a mandatory HMO license from the local authority, which can bring additional requirements in terms of room size, safety standards, and facilities provided.

It’s also worth noting that large HMOs with more than six or seven rooms might be considered ‘commercial HMOs’ or ‘multi-unit freehold blocks’ (MUFBs) by some lenders, which could require a commercial mortgage instead of a standard HMO mortgage.

HMO mortgage fees

When you take out an HMO (House in Multiple Occupation) mortgage, you may need to pay several fees, including:

Arrangement fee: This is a fee for setting up the mortgage. It can sometimes be added to the mortgage balance, but adding it to the loan means you’ll pay interest on it. This fee can vary greatly, from a few hundred to a few thousand pounds.

Booking/Application Fee: Some lenders charge this upfront fee when you apply for a mortgage. It’s typically non-refundable, even if your mortgage doesn’t go ahead.

Valuation fee: This covers the cost of assessing the property’s value. The cost can vary depending on the property size and its value.

Legal fees: These cover the cost of the legal work involved in arranging the mortgage and transferring ownership of the property. This is usually done by a solicitor or licensed conveyancer.

Broker fee: If you use a mortgage broker, they may charge a fee for their services.
Early Repayment Charges (ERCs): If you repay your mortgage early, either by paying it off or by switching to a new deal, you might have to pay an early repayment charge.

Exit fees: Some lenders charge a fee when you fully repay your mortgage.
Higher Lending Charge: If you’re borrowing a high percentage of the property’s value, the lender might charge a higher lending charge. This is to cover the increased risk to the lender of providing a high loan-to-value mortgage.

The exact fees you’ll pay will depend on the lender and the specific mortgage product, so it’s a good idea to read the mortgage offer carefully and consider getting advice from a mortgage broker or financial advisor to ensure you understand all the associated costs.

Can I refinance an existing HMO mortgage?

Yes, you can refinance an existing HMO (House in Multiple Occupation) mortgage, just as you would with a standard mortgage. Refinancing, or remortgaging, involves taking out a new mortgage to pay off the existing one. There are several reasons why you might choose to refinance an HMO mortgage:

Better Interest rates: If interest rates have dropped since you took out your original mortgage, or if your credit profile has improved, you may be able to secure a lower interest rate with a new mortgage, reducing your monthly payments and potentially saving you a significant amount of money over the term of the loan.

Switching mortgage types: You might want to switch from a variable rate to a fixed-rate mortgage, or vice versa, depending on your financial situation and future interest rate expectations.

Accessing equity: If your property has increased in value, refinancing can allow you to access some of the equity in the property. This is often called a cash-out refinance. The cash can be used for a range of purposes, such as making improvements to the property, investing in additional properties, or paying off other debts.

Changing loan terms: You may wish to change the term of the loan, for instance, extending the term to reduce your monthly payments, or shortening the term to pay off the loan faster.

Consolidating debt: If you have other high-interest debts, you may be able to consolidate these into your mortgage by borrowing additional funds when you refinance. This can potentially reduce your overall interest costs, but it’s important to consider the risks, as your property will be at risk if you can’t keep up with the repayments.

What are the tax implications?

The tax implications of an HMO (House in Multiple Occupation) mortgage can be complex, and they will depend on a number of factors, including your personal financial situation, whether you hold the property as an individual or through a limited company, and the specific tax laws in force at the time. Some of the key tax considerations for HMO landlords in the UK are as follows:

Income tax: The rental income you earn from an HMO property is considered taxable income and must be reported on your self-assessment tax return if you own the property as an individual. This income is subject to income tax at your marginal tax rate, which could be 20%, 40%, or 45%, depending on your overall income level. You can deduct certain allowable expenses from your rental income to reduce your taxable income, such as mortgage interest (although this relief has been restricted), property maintenance costs, insurance, and letting agency fees.

Corporation tax: If the property is held in a limited company, the rental income will be subject to corporation tax, which was set at 25%. Unlike individual landlords, limited companies can still fully deduct mortgage interest from their rental income before calculating their tax liability. However, when you extract the profits from the company, you might need to pay additional tax in the form of income tax on dividends or salary.

Capital gains tax (CGT): When you sell the property, you may have to pay CGT on the profit you make from the sale after deducting allowable costs. The rate of CGT depends on your overall income and can be 18% or 28% for property sales. If the property is held in a company, the profit from the sale will be subject to corporation tax rather than CGT.

Stamp duty land tax (SDLT): When you purchase an HMO property, you may need to pay SDLT. The rate of SDLT depends on the property’s value, whether you own any other properties, and whether the property is held by an individual or a company. HMO properties can sometimes be subject to the Multiple Dwellings Relief, which can reduce the amount of SDLT payable.

Are there specific insurance requirements?

Yes, there are specific insurance requirements for HMOs (Houses in Multiple Occupation), and this also extends to HMO mortgages. This is because the risks associated with HMOs can be higher compared to a standard residential property. These risks can include fire, damage, and liability issues.

HMO properties often require a specific type of insurance, known as HMO insurance or landlord insurance. This is different from standard home insurance and is designed to cover the additional risks associated with renting out a property to multiple tenants. HMO insurance typically includes:

Buildings insurance: This covers the cost of repairing or rebuilding the property in the event of damage due to fire, flood, subsidence, or other major events.

Landlord liability insurance: This provides cover if a tenant or a visitor is injured at the property and you are found to be at fault.

Loss of rent cover: This can provide compensation if you’re unable to rent out the property due to an insured event, such as a fire or flood.

Contents insurance: If the property is furnished, this can cover the cost of repairing or replacing furniture or appliances that are damaged or stolen.

Legal expenses cover: This can cover legal costs associated with disputes, such as eviction proceedings or claims against tenants for property damage.

When taking out an HMO mortgage, the lender will typically require you to have appropriate buildings insurance in place, at a minimum. However, it’s usually a good idea to consider a comprehensive HMO insurance policy that covers all the main risks.

The exact insurance requirements and premiums can depend on a range of factors, including the size and condition of the property, the number of tenants, and the type of tenants (for example, students or professionals).

It’s important to discuss your insurance needs with a knowledgeable insurance broker or advisor to ensure you have adequate cover. Be sure to provide accurate and complete information to the insurer to avoid invalidating your cover.

What happens if I fail to comply with the HMO regulations?

Failing to comply with HMO (House in Multiple Occupation) regulations can have serious consequences, both legally and financially. It can also potentially impact your HMO mortgage. Here are some of the potential consequences:

Legal penalties: Non-compliance with HMO regulations can result in substantial fines, prohibition orders (which prevent the property from being used as an HMO), and in some cases, even imprisonment. You may be ordered to make repayments to tenants for rent paid during the period of non-compliance.

Mortgage breach: Non-compliance could also be considered a breach of your mortgage agreement. If your mortgage lender discovers that you’re not complying with HMO regulations, they could require you to repay the mortgage in full immediately or face legal action. This is because non-compliance with HMO regulations increases the risk to the lender.

Difficulty in refinancing: Non-compliance with HMO regulations could also make it more difficult for you to refinance the mortgage in the future, as it could affect your creditworthiness, and lenders may be reluctant to lend to you.

Insurance invalidated: Non-compliance with HMO regulations might invalidate your property insurance, which could leave you financially exposed if the property is damaged or if a tenant or visitor is injured.

Reputation damage: Non-compliance can also damage your reputation as a landlord, making it harder to attract and retain tenants.

Compliance with HMO regulations is crucial, not just to avoid these consequences but to ensure the safety and well-being of your tenants. If you’re unsure whether you’re meeting all the necessary regulations, it’s advisable to seek professional advice. You should also stay up-to-date with any changes in HMO regulations, as these can change over time.

What types of properties are suitable for HMO mortgages?

The types of properties suitable for HMO (House in Multiple Occupation) mortgages can vary widely, as can the criteria used by lenders to assess them. Generally, however, properties that can accommodate multiple tenants, offer shared facilities, and comply with HMO regulations are most suitable for HMO mortgages.

Here are some common types of properties that might be suitable:

Large houses: Properties with multiple bedrooms (typically at least 3 or 4) are often suitable for conversion into an HMO. They may already have suitable shared spaces such as kitchens and living rooms.

Multi-unit properties: Some properties are built or converted with multiple self-contained units, each with their own kitchen and bathroom facilities. These can also be suitable for HMO mortgages, although the mortgage might be classified as a multi-unit freehold block (MUFB) mortgage in some cases.

Purpose-built shared accommodation: Some properties are specifically designed or converted for use as HMOs. These might include student housing, hostels, or co-living spaces.

Flats or apartments: Depending on local regulations and the leasehold agreement, it might be possible to use an HMO mortgage for a flat or apartment that is rented out to multiple tenants.

When assessing a property for an HMO mortgage, lenders will consider a number of factors, including the property’s size, condition, location, and potential rental income. They’ll also consider whether the property complies with HMO regulations, which can include requirements for fire safety, room sizes, and provision of facilities such as kitchens and bathrooms.

Some lenders may also have additional criteria, such as a maximum number of rooms or tenants. It’s also worth noting that if a property is being converted into an HMO, planning permission might be required, depending on the size of the HMO and local planning policies.

How long does it usually take to secure an HMO mortgage?

The time it takes to secure an HMO (House in Multiple Occupation) mortgage can vary depending on a range of factors. Generally, it might take anywhere from a few weeks to a few months to complete the process.

Here are some factors that can affect the timeline:

Preparation of application: The time it takes you to gather all the necessary documents and information can impact the timeline. This includes proof of income, details about the property, and in some cases, a business plan.

Mortgage broker or lender’s schedule: Depending on how busy the lender or broker is, there might be a wait before they can process your application.

Property valuation: The lender will need to arrange a valuation of the property to assess its suitability for an HMO mortgage. The time this takes can depend on the availability of the valuer and access to the property.

Underwriting process: The lender’s underwriting process can take time, as they need to assess your financial situation, the property, and the rental market to determine the level of risk.

Legal process: The conveyancing process involves legal checks on the property and the transfer of funds. This process can sometimes be delayed due to issues such as problems with the property title or waiting for search results.

HMO licensing: If a property requires an HMO license, the time it takes to secure the license can also affect the mortgage timeline.

Given these factors, it’s wise to plan for the process to take a few months. However, the exact timeline will depend on your specific situation, the property, and the lender.

How do I prepare my property for an HMO mortgage valuation?

The valuation process for an HMO (House in Multiple Occupation) mortgage is critical, as it not only determines whether the property is suitable for an HMO, but also establishes the value of the property, which will influence the size of the mortgage you can get.

Here are some steps you can take to prepare your property for an HMO mortgage valuation:

Repairs and maintenance: Ensure that any outstanding repairs or maintenance issues are addressed before the valuation. This includes structural issues, electrical and plumbing systems, as well as cosmetic issues like peeling paint or worn carpets.

Clean and tidy: Make sure the property is clean and tidy for the valuation. This can help create a positive first impression and demonstrate that the property is well-managed.

Safety compliance: Compliance with safety regulations is a critical factor for HMOs. This includes fire safety measures like smoke alarms, fire doors, and clear escape routes, as well as gas and electrical safety. Make sure you have up-to-date safety certificates to hand.

Room sizes: The size of bedrooms in HMOs is regulated. Ensure all rooms meet minimum size requirements and are appropriately set up to demonstrate their intended use.

Documentation: Have all relevant documents available for the valuer. This might include tenancy agreements, rental income records, HMO licensing (if already obtained), and details of any service charges or ground rent.

Maximise rental income: If you can demonstrate higher rental income, it could result in a higher valuation. Consider whether there are ways to increase your rental income, such as renting on a room-by-room basis or providing additional services.

Market evidence: If you have evidence of similar HMO properties in the area that have sold or been rented recently, this could help to support your case for a higher valuation.

Professional advice: Consider getting professional advice from a property consultant or an experienced HMO landlord to ensure you’re not overlooking anything.

The valuer’s job is to assess the property’s market value and its suitability as an HMO. A well-maintained, compliant property that provides good rental income will be more attractive to lenders.

How can I increase my chances of getting approved for an HMO mortgage?

Getting approved for an HMO (House in Multiple Occupation) mortgage can sometimes be more challenging than a traditional residential or buy-to-let mortgage due to the increased complexities and risks associated with HMO properties. However, there are several steps you can take to increase your chances of approval:

Improve your credit score: Lenders will look at your credit history to determine your reliability as a borrower. Making sure you have a good credit score can improve your chances of approval. This might involve paying off debts, ensuring you’re on the electoral roll, and checking your credit report for any errors.

Build your experience: Many lenders prefer applicants who have previous experience as landlords. If you’re new to property investment, it might be worth gaining some experience with standard buy-to-let properties before moving on to HMOs.

Demonstrate affordability: Lenders will want to see proof that you can afford the mortgage repayments. This will involve assessing your income and outgoings. Having a regular income and reducing your debts can improve your chances of approval.

Prepare a business plan: If you’re applying for a mortgage as a limited company, the lender might want to see a detailed business plan. This should outline your plans for the property, how you intend to manage it, and a projection of your income and expenses.

Choose the right property: The property’s location, condition, and suitability for use as an HMO will all be factors in the lender’s decision. It can be beneficial to choose a property that is already in good condition and in a location with strong demand for rental properties.

Have a large deposit: HMO mortgages often require a larger deposit compared to standard buy-to-let mortgages. The larger the deposit you can provide, the lower the lender’s risk, which can improve your chances of approval.

Comply with HMO regulations: HMO properties are subject to specific regulations, including licensing requirements, safety standards, and minimum room sizes. Ensuring the property complies with these regulations is crucial.

Work with a mortgage broker: A broker experienced in HMO mortgages can help you navigate the application process, find the best lenders for your situation, and provide advice to improve your chances of approval.

The benefits of using a specialist broker

Using a specialist HMO (House in Multiple Occupation) mortgage broker can have several benefits when you’re looking to finance an HMO property. Here are some key advantages:

Expert knowledge: HMO mortgages can be more complex than standard residential or buy-to-let mortgages, due to the specific regulations and increased risks associated with HMO properties. A specialist HMO mortgage broker will have expert knowledge of the market and can guide you through the process, helping you understand the unique challenges and requirements.

Access to specialist lenders: Some lenders specialise in HMO mortgages and may not be accessible directly by the consumer. A specialist broker can give you access to these lenders and their products, potentially offering better terms and more suitable options for your needs.

Time-saving: Searching for the best mortgage product, comparing different offers, and navigating the application process can be time-consuming. A broker can do all this work for you, saving you time and effort.

Tailored advice: A specialist HMO mortgage broker can provide tailored advice based on your personal circumstances, helping you make the best decisions. They can assess your financial situation and guide you on how much you can afford to borrow, what type of product would be best, and how to increase your chances of approval.

Application support: A broker can assist you in preparing your application and ensure that you have all the necessary documentation, increasing the likelihood of a successful application. They can also liaise with the lender on your behalf, addressing any issues that may arise during the application process.

Regulatory protection: Mortgage brokers in the UK are regulated by the Financial Conduct Authority (FCA). This means they must provide advice that is in your best interest, and you have certain rights if you’re given incorrect advice.

Long-term relationship: Building a relationship with a specialist broker can be beneficial for your long-term investment strategy. They can continue to provide advice and support as your portfolio grows and your needs change.

Using a specialist HMO mortgage broker can, therefore, provide valuable support, advice, and access to the best products to suit your needs. Always ensure the broker you choose is suitably qualified and regulated by the FCA.


Can I convert a standard residential mortgage to an HMO mortgage?

It is generally not a straightforward process to convert a standard residential mortgage to an HMO (House in Multiple Occupation) mortgage. If you have a property with a residential mortgage and you want to turn it into an HMO, you should first consult with your current lender. Many lenders don’t permit their residential properties to be let out, much less to be converted into HMOs, because of the increased risks and complexity involved.

If your current lender does not permit the conversion, or if they don’t provide HMO mortgages, you’ll likely need to remortgage with a lender who does offer HMO mortgages. Keep in mind that HMO mortgages usually require a larger deposit and have higher interest rates than standard residential mortgages.
Additionally, changing the use of a property from a standard dwelling to an HMO usually requires planning permission, and you’ll need to comply with all the regulations that apply to HMOs, such as minimum room sizes, fire safety standards, and potentially obtaining an HMO licence.

Is it possible to get an interest-only HMO mortgage?

Yes, interest-only mortgages are fairly common in the buy-to-let and HMO mortgage market. With an interest-only mortgage, your monthly payments only cover the interest on the loan, and the original amount borrowed (the capital) is repaid at the end of the mortgage term. This can make the monthly repayments more affordable, but you’ll need to have a plan in place to repay the capital at the end of the term. The lender may also want to see evidence of an investment or savings plan that will generate the necessary funds.

Can I switch lenders if I already have an HMO mortgage?

Yes, it’s possible to switch lenders if you already have an HMO mortgage, often referred to as remortgaging. People often remortgage to get a better interest rate or to release equity from the property. However, before doing so, it’s important to consider any penalties or fees associated with exiting your current mortgage early, as well as the costs of the new mortgage. It can be beneficial to work with a mortgage broker to help you understand the costs and benefits of remortgaging.

What are the consequences of late payments or defaulting?

Late payments or defaulting on any type of mortgage, including an HMO mortgage, can have serious consequences:

Late payment fees: Many lenders will charge a fee if your payment is late.

Credit score impact: Late payments will be recorded on your credit report and can negatively impact your credit score. This could make it more difficult for you to secure credit in the future.

Potential legal action: If you default on your mortgage, meaning you fail to make payments for an extended period, the lender could take legal action to repossess the property.

Potential loss of property: In the event of continued default, the lender has the right to take possession of the property and sell it to recover the money owed. 

Can I use an HMO mortgage to finance a purpose-built student accommodation property?

Yes, many lenders will allow an HMO mortgage to be used for purpose-built student accommodation. However, the criteria may be stricter, and the lender will likely consider factors such as the demand for student housing in the area, the condition of the property, and your experience as a landlord. It’s recommended to consult with a mortgage broker or lender directly to understand their specific criteria.

What's the role of an HMO manager and how does it relate to an HMO mortgage?

An HMO manager is responsible for the day-to-day operations of the property. This includes ensuring compliance with all health and safety regulations, maintaining the property, and dealing with tenants’ issues. While the role of an HMO manager is largely separate from the mortgage, lenders may consider the presence of a reliable and experienced HMO manager positively when considering an HMO mortgage application. This is because effective property management can lead to lower vacancy rates and fewer property-related issues, reducing the risk to the lender.