Specialist buy-to-let mortgages:
Houses in Multiple Occupation (HMO)
A House in Multiple Occupation (HMO) is generally a property occupied by at least three people forming two or more households who share facilities such as a kitchen or bathroom. Three unrelated friends renting together can therefore create an HMO, even if they sign one joint tenancy.
An HMO mortgage is designed for this type of shared occupation. A conventional buy-to-let mortgage may not permit it, even where the property does not require an HMO licence.
Small and large HMOs
“Large HMO” can mean different things for licensing, planning and mortgage purposes.
In England, an HMO occupied by at least five people forming two or more households will normally require mandatory licensing. However, lenders commonly describe properties with up to six bedrooms as small HMOs and those with seven or more as large HMOs.
In planning terms, an HMO occupied by three to six people normally falls within use class C4. Seven or more occupants generally moves the property into sui generis use.
Our HMO & MUFB decision tree should help you determine if your property is a standard BTL, an HMO or a muti-unit freehold block.
Tenancies and rental income
Tenants may sign one joint agreement covering the property or separate agreements for individual rooms. Lenders differ over which arrangements they accept.
Some calculate affordability using the combined room rents, while others use a single rent for the property or make deductions for bills, management costs and vacant rooms.
See Rental assessments & affordability calculationsfor more detail.
Licensing and planning
Not every HMO requires a licence, but the property must comply with the relevant local rules. Councils can introduce additional licensing schemes covering smaller HMOs, including those occupied by only three or four people.
Licensing conditions may cover room sizes, fire precautions, amenities, waste storage and maximum occupancy. Scotland requires HMO licensing where at least three unrelated people share facilities, while separate requirements apply in Wales and Northern Ireland.
Planning permission may also be required. In England, councils can use Article 4 directions to restrict the conversion of ordinary homes into HMOs.
Valuations
Smaller HMOs are usually assessed using a standard “bricks-and-mortar” valuation, based primarily on comparable residential sales. The lender’s principal concern is how readily the property could be returned to use and sold as an ordinary family home.
Large or purpose-designed HMOs may qualify for a commercial investment valuation. This considers the property’s sustainable net rental income and an appropriate investment yield, alongside its physical characteristics, condition and location.
The distinction becomes particularly important at seven bedrooms, although some substantially adapted five- or six-bedroom HMOs may also justify a commercial or hybrid valuation.
For a larger HMO, it can be advantageous to choose a lender with access to a panel of experienced commercial valuers rather than a single general valuation provider. This may give the specialist mortgage broker an opportunity to request or nominate a valuer with appropriate knowledge of HMOs and the local investment market.
The lender retains control of the valuation instruction, but the choice of valuer can materially affect how the property is assessed. Its configuration, planning status, licence, established income and comparable HMO investment sales may all need to be considered alongside its underlying value as an ordinary house.
Landlord experience
Some lenders accept first-time landlords for smaller HMOs. Large HMOs are more likely to require previous buy-to-let or HMO experience, a clear management strategy and evidence that the property can be licensed and operated as intended.