An HMO is a House in Multiple Occupation.

If you’re a private landlord and you want to rent your property as a house share or student flat to three or more unrelated people, you’ll need an HMO licence (and a special HMO mortgage) to do so.

It’s pretty similar to other buy-to-let scenarios, but with a few extra health and safety rules and regulations thrown in for good measure. 

Here, we take you through the things you need to know and organise before your first tenants move in. 

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 isn’t an HMO.
  • If you’re renting to two friends who met during their first year of uni, it’s not a HMO.
  • If you’re renting to a couple who live together but aren’t married, you guessed it – it’s not an HMO.

But, if you’re planning to rent to three or more unrelated housemates – whether they’re students, young professionals, or any other group renting with people outside their own family –  it’s classed as a House in Multiple Occupation.

In an HMO, each tenant will have their own bedroom, but they’ll share a kitchen, bathrooms, and living spaces. Each tenant also signs their contract and pays their deposit and rent separately. 

There are two kinds of HMO:

  • 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 kind of mortgage you’ll need to buy a house to rent as an HMO. For small HMOs, the terms and conditions aren’t all that different to a regular buy-to-let mortgage.

So, what do you need to get one?

A larger deposit

You’ll need a larger deposit than you would for your own residential mortgage – between 20% and 40% depending on your mortgage lender. You might also find that your interest rate is higher for an HMO mortgage. This is pretty common for any mortgage on a second property. Your lender knows that you already have a monthly outgoing for your first mortgage, so they want a larger deposit to reduce their risk with your second. 

A strict stress test

Also risky? Renting to short-term tenants. This means lenders are extra strict when it comes to their stress tests (the calculations they do to make sure you could still make your monthly payments if your circumstances changed).

There’s a perception that short-term tenants are more likely to miss their rental payments, move out and leave the property empty, or even lower the value of the house or flat by accidental damage or neglect. If there’s a higher chance your income will change because of your tenants, lenders are more cautious. 

Enough rental income

When you’re applying for a HMO mortgage (or any kind of buy-to-let mortgage), you’ll have to prove that the rent you’re charging will cover between 125% and 145% of your mortgage payment. This is even more important for large HMOs, which many mortgage lenders treat more like a commercial mortgage.  

So, if you owe your lender £750 a month, you’d have to make between £937.50 and £1087.50 per month in rent (or between about £310–£360 per tenant per month in a three-person house share). 

And these sums don’t just have to work out on paper. Your lender will also check the local market to make sure this rent is realistic based on your property’s location. If you’re charging too much, it’ll be harder to find new tenants if the old ones move on, and there’s a higher chance you’ll miss your own mortgage payments as a result.

And then there’s the question of the HMO licence. 

Do I need an HMO licence to get an HMO mortgage?

It’s often impossible to get an HMO mortgage without an HMO licence, especially if:

  • You’re letting in Scotland, where all HMO landlords need a licence
  • You’re 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 will have to register your HMO with the housing executive, which is a similar process.

Remember, the licence is tied to the HMO, not to you as an individual. If you have three HMOs, you’ll need three licences, even if they’re in the same local authority.

How do I get an HMO licence?

As long as you don’t have a criminal record and you haven’t had previous tenants take legal action against you as a landlord, you can apply for an HMO licence. You’ll need to do this through your local authority.

Each local council has a slightly different application process and a slightly different fee (usually between £500 and £1000). But needing to apply for an HMO licence isn’t the end of the world. After all, most of the criteria you’ll have to meet relate to keeping your tenants (and your investment in your property) safe. And once you have the piece of paper in your hand, it’s valid for five years.

To get or maintain your HMO licence, you’ll have to show that: 

  • Each bedroom meets a minimum size requirement
  • There are clear fire-escape routes and a printed fire escape plan on display
  • There’s emergency lighting
  • There are smoke detectors hardwired into every room
  • There are fire doors on the bedrooms and communal areas, and that they’re self-closing
  • You have an up-to-date gas safety certificate

You’ll also have to make sure that:

  • Every electrical appliance, even those belonging to the tenants, is regularly inspected by an electrician
  • The whole property is regularly inspected to make sure the tenants haven’t obstructed any of the safety measures
  • Your contact details are clearly displayed in the property in case an issue ever comes up

Finally, especially if you want to let a large HMO, you’ll need a proven track record as a landlord. So it can sometimes be easier to get an HMO mortgage if you’ve previously had a buy-to-let property and rented to a family or a single tenant before you take the step into the world of HMOs.  

This sounds like a long list, and it is a lot more work than you’d have for a regular buy-to-let mortgage. But if you don’t meet your responsibilities as an HMO landlord, you can be taken to court. This is another reason mortgage lenders can be extra cautious about HMO mortgages. 

You might also want to check out The Real Costs of Being a Landlord, which covers all the extra expenses and overall costs you can expect. 

Who can get an HMO mortgage? 

Still interested in renting a property as an HMO? Technically, small HMO mortgages are open to most buyers in the UK, even first-time buyers (although you might run into problems when it comes to showing your track history as a landlord).

But because HMO mortgages are a more specialist kind of mortgage than a regular buy-to-let, it might be harder to find a good deal because there’s less competition between lenders.  

That’s where Habito’s buy-to-let mortgage know-how can help.

As a whole-of-market mortgage broker, we’ll compare deals from dozens of lenders to find the HMO mortgage that’s best for you. And we’ll be with you every step of the way, laying out the whole process on your very own Habito dashboard. Ready? Get started here.