HMO Mortgage Guide

HMO Mortgage Guide

HMO Mortgage Guide | Securing an HMO mortgage in the UK requires specialist knowledge. An HMO (House in Multiple Occupation) is a property let to three or more unrelated tenants. Lenders apply more demanding criteria than standard buy-to-let. This guide explains every step you need. We cover typical requirements, rental yield expectations, structuring the deal and how to apply.

What Is an HMO Mortgage?

An HMO mortgage is a specialist loan for properties rented to several unrelated tenants. Lenders classify HMOs as higher risk due to tenant turnover and increased management needs. They expect stronger rental income and stricter compliance. Most lenders also require detailed checks on licensing, safety and property layout before approval.

An HMO usually earns more than a single-let home. A four-bedroom HMO near a university may generate significantly higher rent than a standard four-bedroom single let. This stronger yield is one reason investors consider HMOs when building property portfolios.  Learn more by visiting our Portfolio Landlord Guide page.

To understand HMOs in more detail, visit our Houses in Multiple Occupation guide for a full breakdown of rules, responsibilities and licensing requirements.

Why consider an HMO investment?

  • Elevated rental income: HMOs often yield 20-40% more than single lets.

  • Diversified tenant risk: one tenancy ends, but others continue paying.

  • Strong demand: In many UK cities, the rental supply for shared housing remains tight.

However, it is essential to weigh increased management, licensing and maintenance costs.

HMO Mortgage Criteria: What Lenders Look For (Data Table)

Criteria What It Means Typical Lender Requirements Why It Matters
Loan-to-Value (LTV) Deposit size required for an HMO mortgage. Most lenders allow 70% LTV. Some specialists offer 75% LTV for SPV-owned HMOs. Lower LTVs reduce lender risk and strengthen the application. Higher deposits support complex or large HMOs.
Interest Coverage Ratio (ICR) Measures if rental income covers mortgage payments. Typical ICR is 125–140%, tested at 5.5% stress rate. Ensures the HMO generates stable income and protects lenders from payment risk.
Property Size & Tenant Numbers Classification of standard vs large HMO. HMOs with 5+ tenants or 6+ bedrooms are classed as large HMOs. Large HMOs face stricter affordability tests, valuations, and compliance checks.
SPV vs Individual Ownership Ownership structure for the mortgage. SPVs may access more lenders and tax benefits. Individual ownership is accepted, but with fewer options. SPVs offer tax efficiency and simplify portfolio management for landlords.
Licensing & Compliance Legal HMO and safety requirements. Must hold a correct HMO licence, meet fire safety, room size rules, and gas and electrical checks. Licensing protects tenants and ensures lenders fund compliant, low-risk properties.
Landlord Experience Track record in letting or HMO management. Lenders prefer prior experience with HMOs or a history of buy-to-let properties. Experienced landlords demonstrate lower risk and stronger management capability.

For wider insight into standard buy-to-let lending, visit our Investment Property | Exclusive Guide to Buy-To-Let Mortgage.

HMO Rental and Borrowing Calculation 

Step Item Calculation Result
1 Gross annual rent £600 × 6 rooms × 12 months £43,200
2 Estimated expenses (~20%) £43,200 × 20% £8,640
3 Net annual rent £43,200 – £8,640 £34,560
4 Lender ICR test £34,560 ÷ 125% £27,648 available for repayments
5 Max borrowing at 5.5% stress rate £27,648 ÷ 0.055 £503,600
6 LTV comparison Property value £700,000 × 70% £490,000 max LTV loan
7 Feasibility check LTV cap £490,000 vs stress test £503,600 LTV limit applies

SPV Ownership vs Individual Ownership

Choosing how to hold your HMO property is a crucial step in the HMO mortgage process. You can buy an HMO in your personal name or through an SPV (special purpose vehicle). Each option has benefits and drawbacks, so investors should compare both routes before applying.

Benefits of SPV Ownership

Many landlords choose to hold HMOs in an SPV limited company. This structure can offer tax and lending advantages.

  • Lower tax on rental profits. SPVs pay corporation tax between 19 and 25 per cent. This rate is often lower than personal income tax on rental income.

  • Wider lender access. Many specialist lenders prefer lending to SPVs for HMO mortgages. This can increase your choice of products and rates.

  • Simpler accounts and interest relief. Mortgage interest remains fully deductible within an SPV. This can improve net profit and long-term cash flow.

  • Better for portfolio growth. SPVs help investors separate business assets from personal finances. This can support future borrowing.

Advantages of Individual Ownership

Buying an HMO in your own name may still be suitable for some landlords.

  • Lower setup costs. You avoid the cost of creating and maintaining a limited company.

  • Simple tax returns. Personal ownership removes the need for company accounts.

  • Some lenders still offer strong rates. A few lenders provide competitive HMO mortgage deals to individuals.

Which Ownership Structure Suits Your HMO Investment?

The right structure depends on your goals, tax position and long-term plans. SPV ownership often suits landlords building a portfolio. Individual ownership may suit first-time investors or those buying a small HMO.

It is important to seek advice from a tax adviser and a specialist HMO mortgage broker before choosing. Compare both options to understand the impact on tax, borrowing power and long-term returns.

You can learn more about limited company lending by visiting our page on SPV mortgage options (internal link recommendation).

Regulation, licensing & risk considerations

HMOs are subject to local authority licensing under the Housing Act 2004. Failure to hold the correct licence can lead to fines and voidings.
Risk factors include:

  • Higher management cost (more tenancies, more maintenance).

  • Potential for voids if tenant turnover is high.

  • Regulatory changes: council selective licensing, energy efficiency rules, tax changes (like corporation tax increases).
    Ensure you factor these risks into your investment modelling.

Step-by-Step Application Process for an HMO Mortgage

  1. Assess your property: Confirm HMO licence status, local planning permission, and the number of lettable rooms.

  2. Estimate likely rental income by using local comparables and planning conservatively.

  3. Choose ownership structure: Individual or SPV.

  4. Select a lender/broker specialising in HMO mortgages. Ask about their panel for HMOs.

  5. Arrange valuation and affordability check: The lender will stress-test the rental income and verify expenses.

  6. Submit mortgage application: Include letting agreements, licence certificate, fire safety reports, etc.

  7. Close and let the property: Once approved, manage tenancy, void periods, and maintenance.

Frequently Asked Questions (FAQ)

  • What loan-to-value can I get for an HMO mortgage? Many lenders offer up to 70% LTV for HMOs; some specialist lenders may offer 75%.

  • Can I use a limited company (SPV) to own an HMO? Yes. Many landlords choose an SPV to benefit from tax efficiencies and access specialist lenders.

  • How much rental income does a lender require? Lenders typically require an Interest Coverage Ratio of 125-140% based on a stressed rate of around 5-6%.

  • Do HMOs require licensing? Yes. In the UK an HMO must hold an appropriate licence under local rules if it meets the criteria for multiple occupation.

  • Is managing an HMO harder than single let? Generally yes. HMOs involve more tenancies, higher turnover and more regulatory requirements.

Connect Knows HMOs

If you are ready to explore an HMO investment or need specialist HMO mortgage advice, speak with one of our expert brokers today. We have access to lenders who specialise in HMO finance and can guide you through every step of the process.

Find Mortgage Advisers

Thank you for reading our “Experienced Mortgage Brokers | CAS Brokers” publication. Stay “Connect“-ed for more updates soon!

FAQ | HMO Mortgage Guide 

Question Answer
What loan-to-value can I get for an HMO mortgage? Many lenders offer up to 70% LTV. Some specialist lenders may offer 75%.
Can I use a limited company (SPV) to own an HMO? Yes. Many landlords use an SPV for tax efficiency and wider lender choice.
How much rental income does a lender require? Lenders need an ICR of 125-140% based on a stress rate of 5-6 percent.
Do HMOs require licensing? Yes. HMOs must hold a valid licence under the local authority rules.
Is managing an HMO harder than a single let? Yes. HMOs involve more tenants, higher turnover and stricter legal requirements.
JOIN OUR NETWORK