Buy-to-Let HMO Mortgages for Landlords

If you’re looking to invest in a buy-to-let property to rent out to multiple tenants all living under the same roof, then a house in multiple occupation (HMO) mortgage is most likely what you’re looking for.

By following this guide you’ll have a clearer understanding of how to get a HMO mortgage, which lenders to use and what requirements you’ll need to meet before your application can be approved.

What is a House In Multiple Occupation (HMO) mortgage?

A HMO mortgage is specifically designed to provide lending for buy-to-let properties that are rented by at least three (typically non-related) tenants – under one tenancy agreement – who all have separate bedrooms and share the communal facilities (kitchen, bathroom, lounge etc.).

The classic example would be a property used by either students at their nearby university/college or young professionals in a large city where renting on their own is simply too expensive.

HMOs are attractive to both landlords and their tenants.

For a landlord, HMOs are usually more profitable, as they’re rented out based on per room/tenant so the overall amount they can collect is typically higher than for renting to just one family. For a tenant, renting a room in a HMO is much more cost-effective than renting an entire property themselves.

How much you could borrow

The maximum amount you could potentially borrow on an HMO mortgage will be determined by the property’s projected rental income.

Try our mortgage calculator below to get a rough idea of whether you could afford your mortgage payments.

Do you need a special mortgage for a HMO property?

Yes, it’s recommended. Whilst HMO properties can be attractive, they can also be seen as a higher risk by some lenders and most standard buy-to-let (BTL) mortgages won’t allow for multiple tenancies.

The main reason for this is HMOs, by their very nature, will tend to have a higher turnover of tenants. Also, collecting from multiple tenants, rather than just one, can present its own issues (what if one won’t pay?).

This means the rental income can be much more unpredictable, which makes a lot of lenders nervous when considering mortgages of this type.

As a result, HMO mortgages are usually only available through specialist lenders, with the right expertise and knowledge to underwrite them.

What’s the difference between a standard buy-to-let and a HMO mortgage?

As the name suggests, a HMO mortgage is designed specifically for landlords who want to rent properties to multiple tenants, under one agreement, whereas a BTL mortgage is best for properties with just one tenant.

Some of the key differences between BTL and HMO are:

Due to their ‘niche’ status, only specialist lenders tend to offer HMO mortgages.

So, the challenge is knowing how to find the right one. A mortgage broker with experience in this area will already know exactly where to look, saving you a lot of time and, potentially, some money too.

How to get a HMO mortgage

If you’re looking for a HMO mortgage, there’s a few simple steps you can take to make the process a lot more straightforward.

This is how we recommend you do it…

Step 1. Check your credit report and affordability

Before you get approval for an HMO mortgage, lenders will test your affordability.

Prepare by checking and if need be updating your credit score and gathering information on your level of income and any evidencing documents such as payslips, invoices, or proof of income from other rental properties you may have.

You can download your credit reports through our dedicated credit reports hub.

Step 2. Gather your paperwork and do your research

Being prepared for an application with the right documents is key to a successful and stress-free  process.

You’ll need three months of bank statements and proof of address. Lenders will look at your experience as a landlord, (for many, this is a qualifying criteria for an HMO mortgage), so it’s important to gather documents evidencing any current letting agreements and ownership for properties you already have.

It’s also important to spend time researching different HMO properties before deciding which one you want to buy.

Do you know how much rent you need to charge, per occupant? Which areas are better than others?

It may be wise to speak with local property experts to get their view on this before moving ahead.

Step 3. Speak to an expert HMO mortgage broker

Many high-street banks don’t offer HMO mortgages, and some of the specialist HMO lenders only work through brokers who understand their criteria.

That’s why the best way to get this type of home  loan is with help from an experienced mortgage broker who has access not only to traditional banks, but also specialist buy-to-let lenders.

With the help of a broker, you’ll be able to access all offers on the market and select the best option for your situation – they’ll also save you lots of time and hassle.

If you get in touch we can arrange for an advisor who has the right expertise in this area to contact you directly.

What is the eligibility criteria?

For HMO mortgages, there’s some specific criteria a lender will want to understand and assess before they can approve your application, as follows:

Property value and whether it’s licensed

Some lenders have minimum requirements for HMO mortgage property value.

But with offers for loans starting from £50,000 – £100,000 property value, this is unlikely to become a sticking point with your application. Some lenders also judge a properties’ eligibility based on whether or not it requires a license to be a HMO from the local council.

Number of rooms

Lenders have rules for the number of rooms or tenants a HMO property can have.

For some, the property has to have a minimum of five rooms to qualify, others will accept the minimum threshold of three bedrooms.

Very few lenders impose a maximum, and those that do tend to be quite high (between 15-20 bedrooms).

Buy-to-let landlord experience

Many lenders require applicants to already have experience as a BTL or HMO landlord.

One years’ experience is a common minimum requirement, but this will vary from one provider to the next.

But if you don’t already have HMO or BTL landlord experience, don’t despair – a select handful of HMO lenders will lend to applicants without previous experience.

First-time landlords can get a HMO mortgage, but the process does tend to be more difficult.

This is where the services of a broker can be to your advantage. They will be able to identify which lenders can help, so you don’t waste time applying to those who won’t consider your application.

Whether or not you’re a portfolio landlord

Many mainstream lenders won’t lend to portfolio landlords – people with four or more properties.

This is because mortgage providers have to carry out increased underwriting requirements before approving a HMO mortgage, including examining business plans, cash flow forecasts and portfolio finance spreadsheets.

If you’re a portfolio landlord, a HMO broker can help you through the process of preparing these documents and finding a specialist HMO portfolio mortgage provider.

General eligibility

As with all mortgage applications, one of the most important things lenders will look out for is your ability to pay off your mortgage.

This includes checking all aspects of your income and credit history. For many lenders, a taxable (non-rental) income is a must – usually minimum £25,000 per annum – and any existing BTL properties must be declared with HMRC.

Other factors such as your age, deposit size and loan-to-value ratio will also be used to judge your affordability. Some mortgage lenders have stricter loan-to-value criteria for HMO loans than they do for BTL or other mortgage types.

How to get the best rates

Typically, applicants that are not portfolio landlords and who buy in their personal name as opposed to buying from a limited company will have access to lower rates.

And as always, your deposit size will play a big factor in increasing or decreasing your rates.

The table below will give you an idea of the HMO mortgage rates currently available. Please note that these deals were accurate at the time of writing (June 2023) and are subject to change.

It takes scanning through the entire UK HMO mortgage market and understanding the different product types to find your best rate offer.

But most people don’t have that kind of time at their disposal, and they may still miss out on offers from lenders who work solely through brokers for HMO.

That’s why it’s recommended you get help from a specialist mortgage broker who can cut through the red tape to find you the best HMO interest rate and mortgage terms, based on your circumstances.

Calculate your rental yield

Rental yield is an important indicator of how profitable your rental investment property is. You can use our calculator below to work out the rental yield for the HMO property you’re looking to buy: