HMO Fundamentals

Definition of an HMO

The first place to start is to determine what a Household of Multiple Occupation (HMO) is.

The simplest definition of an HMO is where you have a number of tenants living in a property and sharing communal facilities (kitchen and bathroom). According to the government website, GOV.UK, a home is a House in Multiple Occupation (HMO) if both of the following apply:

  • at least three tenants live there, forming more than 1 household
  • you share toilet, bathroom, or kitchen facilities with other tenants

Your home is a large HMO if all of the following apply:

  • it’s at least three stories high
  • at least five tenants live there, forming more than one household
  • you share toilet, bathroom, or kitchen facilities with other tenants

A household is either a single person or members of the same family who live together. A family includes people who are:

  • married or living together — including people in same-sex relationships
  • relatives or half-relatives, e.g., grandparents, aunts, uncles, siblings
  • step-parents and step-children


Don’t be surprised to find out that the definition of an HMO differs between councils across the UK. As such, if you are looking to purchase a property in a particular area, the onus is on you the landlord to check the local council’s website for their HMO definition and whether the type of property and number of tenants requires it to be licensed as an HMO.

HMO properties


HMO properties: cash is king

The vast majority of BTL lenders will not lend on an HMO properties. If you are old enough to have spent considerable time in this industry, the term HMO immediately conjures up Rachmanism (defined in the Oxford dictionary as the exploitation and intimidation of tenants by unscrupulous landlords). The bottom line: You are faced with a tiny panel of lenders.

Nonetheless, HMO is rapidly become a niche area for savvy investors and first time landlords. Their rationale: Why stress yourself trying to build a property portfolio when just buying and managing one or two HMOs can produce the same result and, most importantly, obtain yields as high as 20%.

The main HMO lenders are:

  1. Kent Reliance Building Society
  2. Paragon Mortgages
  3. Aldermore Bank
  4. Leeds Building Society
  5. Fleet Mortgages
  6. Shawbrook Bank
  7. LIoyds Bank
  8. Niche Lenders: Experienced brokers have access to underwriters and niche lenders that adopt a lateral thinking approach to lending and if the case makes sense they’ll do the deal

The rental criteria for HMO are more stringent than for standard BTL mortgages. The monthly cover can vary from 125% to 150% of the monthly mortgage payment using a notional rate of 5% to 7%.

For example: Purchase price of a 5 bed HMO is £250,000 and you are looking to borrow £175,000 (70% LTV). Estimated monthly rent: £2500

The rental calculation applied by the HMO lender to borrow £170,000 could be:

£170,000 x 7% = £11,900 / 12 months = £992 x130% = £1290

Multiple Tenancies

A single family dwelling means one family, e.g., a family could be described as Dad, Mum, two kids, and the family dog. I will leave you to define ‘’family’’.

The typical BTL mortgage will stipulate that the property can only be rented on a single family dwelling basis.  As such, properties with more than one family or multiple occupants are not acceptable. If you are a landlord renting your property out to multiple tenants, you could be in breach of your mortgage conditions.

Check the conditions of your BTL mortgage offer; there will be a paragraph on the type of tenancies that are not acceptable. One of them will be multi-lets or multiple tenancies (or, for the avoidance of doubt, houses in multiple occupation).

Lenders will not lend on multi-let properties as they perceive them to be HMO even though the local council might stipulate that the property in question is not an HMO.

For example: You may have a three bedroom flat and you’ve converted the lounge into a fourth bedroom. You’ve rented it out to four professionals with each tenant having their own bedroom but sharing communal facilities. You could be in breach of your mortgage conditions.

You are looking to remortgage and secure a standard 5 year fixed rate BTL product to protect against a hike in base rates.

Your credit and income is satisfactory and the lender instructs a surveyor to confirm property value and rental income. When the surveyor goes round to conduct a valuation, he will inform the lender of the multiple tenants in the flat and that it does not meet the lender’s standard BTL criteria of a single family dwelling. You’ll also be advised to check with your local council as to whether an HMO licence is required. On that note, the lender will decline to lend as it’s a multiple tenancy.

Experienced mortgage brokers have been able to get a tiny percentage of these cases overturned if the landlord is able to obtain confirmation from the local council that the property does not constitute an HMO and that all four professional tenants are on one tenancy agreement. A key factor in getting these deals through is as a result of working with niche lenders that adopt a pragmatic approach.

If your investment strategy is HMOs and multiple tenancy properties, speaking to a specialist BTL mortgage broker from the very outset is a smart move. They’ll give you ideas on the type of deals they can obtain. For example, there is no point in looking at a ten bedroom property with fantastic yields only to find out that the maximum number of beds allowed by the lenders with the best rates is eight bedrooms.

If you do your homework correctly, HMOs can be a fantastic cash cow. Would you rather have four BTL properties generating a positive cash flow of £1600 per month or two HMOs generating positive net cash flow of £3150 per month?

If you are attracted to the potentially higher yields on HMOs compared to a standard BTL, then take note: You will need to speak to an experienced broker that has experience of arranging HMO mortgages. The vast majority of clients focus on standard BTL mortgages and as a result, the majority of brokers only arrange standard BTL mortgages. If you do find a broker, ask them how many HMO mortgages they have arranged in the last 12 months. is not recommending that you invest in any specific property. You must conduct your own due diligence before investing in property. Property prices can rise and fall in value and past performance of the UK property market is no guarantee to future performance.


The Financial Conduct Authority does not regulate most types of buy to let mortgages, bridging loans and commercial loans.


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