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What you need to know about HMO mortgages.

Comprehensive Insights into Mortgages for Shared Rentals in Houses in Multiple Occupation

Understanding HMO Mortgages with

If you're a private landlord looking to rent your property as a house share or student flat to three or more unrelated people, you'll need an HMO (House in Multiple Occupation) licence and an HMO mortgage from

It's quite similar to other buy-to-let scenarios, but there are additional health and safety rules and regulations to consider. Let's go through what you need to know and prepare before welcoming your first tenants.

What is an HMO? An HMO is a property rented by at least three people from different households.

  • If you're renting to a family with three young kids, it's not an HMO.

  • If you're renting to two friends who met during their first year of uni, it's not an HMO.

  • If you're renting to an unmarried couple who live together, it's not an HMO.

However, if you plan to rent to three or more unrelated housemates, whether they're students, young professionals, or any other group renting with people outside their family, it's considered a House in Multiple Occupation.

In an HMO, each tenant has their own bedroom, while they share a kitchen, bathrooms, and living spaces. Each tenant also signs their contract and pays their deposit and rent separately.

There are two types of HMOs:

  • A small HMO for three or four people.

  • A large HMO for five or more.

What is an HMO Mortgage? An HMO mortgage is the type of mortgage you'll need to purchase a property for renting as an HMO. For small HMOs, the terms and conditions are quite similar to a regular buy-to-let mortgage, except for a few differences.

Here's what you need to secure one:

  • A Larger Deposit: You'll need a larger deposit than you would for your own residential mortgage, typically between 20% and 40%, depending on your mortgage lender. It's possible that your interest rate will be higher for an HMO mortgage. This is common for any mortgage on a second property because lenders want a larger deposit to reduce their risk, considering you already have a monthly outgoing for your first mortgage.

  • A Strict Stress Test: Renting to short-term tenants is considered riskier, which makes lenders extra cautious when performing stress tests to ensure you can make your monthly payments even if your circumstances change.

  • Sufficient Rental Income: When applying for an HMO mortgage (or any buy-to-let mortgage), you must demonstrate that the rent you charge will cover between 125% and 145% of your mortgage payment. This is especially vital for large HMOs, as many mortgage lenders treat them more like commercial mortgages.

Your lender will also verify the local market to ensure that your rent aligns with the property's location. Charging too much may make it harder to find new tenants if the old ones move out and increase the risk of missing mortgage payments.

The HMO License Requirement: Getting an HMO mortgage, especially when:

  • Letting in Scotland, where all HMO landlords need a licence.

  • Letting a large HMO to five or more tenants in England or Wales.

In Northern Ireland, you won't need an HMO licence, but you must register your HMO with the housing executive, following a similar process. Remember, the licence is associated with the HMO, not you as an individual. If you have three HMOs, you'll need three licences, even if they're in the same local authority.

How to Obtain an HMO Licence: As long as you have no criminal record and no previous tenant-related legal issues, you can apply for an HMO licence through your local authority.

Each local council has its application process and fee, typically ranging from £500 to £1000. Applying for an HMO licence is manageable since most criteria revolve around tenant safety and property preservation. Once obtained, the licence is valid for five years.

To get or maintain your HMO licence, you'll need to ensure that:

  • Each bedroom meets minimum size requirements.

  • There are clear fire-escape routes and a printed fire escape plan displayed.

  • Emergency lighting is installed.


Ape head mortgage advisor
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