Mortgages for HMO Explained: Rules, Rates, and Lender Criteria

The UK rental market continues to evolve, with many landlords and investors turning to Houses in Multiple Occupation (HMOs) as a way to maximise returns and reduce risk. These properties, which house multiple unrelated tenants sharing facilities like kitchens or bathrooms, can generate significantly higher yields than single-let properties. However, financing them is not as straightforward. Mortgages for HMO differ from standard buy-to-let products in several important waysranging from regulations and interest rates to the expectations of lenders.

In this article, well break down the key things to know before applying for this type of mortgage, including the rules you must follow, the types of interest rates you may encounter, and the essential criteria most lenders will look for in 2025.

1. What Exactly Is an HMO?

An HMO, or House in Multiple Occupation, refers to a property rented out by at least three tenants who are not from the same household (e.g., a family) but share common amenities. These setups are common among students, young professionals, and low-income renters in cities and towns where affordable housing is in high demand.

HMOs can range from small properties with three tenants to large buildings housing more than five individuals. In many cases, these properties require a license from the local council, especially if they qualify as large HMOs (usually five or more tenants forming more than one household).

Before even considering applying for financing, its essential to know whether your planned property meets the HMO definition and if you need a license under your local authority's rules.

2. Licensing and Regulatory Considerations

HMO licensing regulations vary depending on location, but in general, landlords must:

• Apply for an HMO license through the local council

• Ensure the property meets specific health and safety standards

• Install fire doors, fire alarms, and emergency exits where necessary

• Have annual gas safety checks and electrical inspections

• Provide adequate amenities (bathrooms, cooking facilities, etc.)

Licensing is often the first hurdle to clear before seeking funding. Lenders want assurance that your property is fully compliant and meets all required safety and habitability standards. Failure to comply can result in fines, revoked licenses, or being forced to evict tenants.

Before applying for a loan, have all relevant licenses and documentation readysome lenders will not consider your application without them.

3. Loan-to-Value (LTV) and Deposit Requirements

When it comes to mortgages for HMO, the financial structure differs from traditional buy-to-let mortgages. Here are some standard terms investors should be prepared for:

• Loan-to-Value (LTV) ratios typically range between 60% and 75%, depending on the lender and your experience.

• Deposit requirements are therefore higherusually at least 25%, sometimes more for complex or large HMOs.

• Some lenders may offer higher LTVs if you have a strong portfolio, provable income, and experience managing similar properties.

• Lenders may also base their maximum loan amount on the projected rental income rather than property value alone.

Be aware that some lenders require a commercial valuation if the property has seven or more lettable rooms, which may affect the mortgage structure.

4. Typical Interest Rates and Fees

Interest rates for HMO mortgages are generally higher than those for standard buy-to-let properties due to the perceived higher risk. However, with the increasing popularity of shared housing, more lenders are entering the market, helping to bring rates down gradually.

In 2025, typical mortgage interest rates for HMOs range from:

• 5.5% to 7.5% for fixed-rate terms

• Slightly lower or higher depending on the borrower profile, LTV, and loan amount

Fees may include:

• Arrangement fees (12% of the loan amount)

• Valuation fees

• Broker fees (if applicable)

• Legal costs, which may be higher for HMOs than standard residential transactions

Choosing between a fixed-rate or variable-rate product depends on your cash flow strategy and market outlook. Fixed-rate mortgages offer stability, while variable rates may allow for better flexibility or early repayment options.

5. Lender Criteria: What Do Banks and Institutions Look For?

Getting approved for mortgages for HMO depends not just on the property but also on the borrower. Most lenders assess several key factors when reviewing your application:

a) Landlord Experience

Lenders often prefer applicants with prior experience managing HMOs or at least a proven track record in the buy-to-let market. Some may require a minimum of 12 months landlord history.

b) Income and Affordability

Even though rental income plays a significant role in HMO mortgages, many lenders still look at your personal incomeespecially if youre applying as an individual rather than a company.

c) Property Location and Type

Properties in high-demand areas with consistent tenant turnover are more attractive to lenders. Theyll also consider the type of property (e.g., terraced house, converted building, purpose-built accommodation) and whether it complies with local planning laws.

d) Rental Income Stress Testing

Lenders perform stress tests to ensure the property can cover repayments even if interest rates rise. The rental income must typically meet 125% to 145% of mortgage payments, based on a hypothetical higher interest rate.

e) Legal Structure

Some landlords purchase HMOs through limited companies for tax efficiency. Many lenders now support this, but company applications may have different criteria, including director guarantees and higher scrutiny of financials.

6. Improving Your Approval Chances

To increase your odds of securing a competitive deal, consider the following tips:

• Work with a specialist broker who understands the HMO mortgage market

• Keep your credit profile clean, avoiding late payments or large unsecured debts

• Provide a strong business case, including expected rental income, room demand, and local area stats

• Partner with experienced letting agents or property managers to reassure lenders of smooth ongoing operations

• Maintain accurate and up-to-date property records, such as safety certificates and maintenance logs

A well-organized and transparent application always performs better with underwriters.

Conclusion

Understanding the nuances of mortgages for HMO is essential for any investor considering shared housing as a profitable route. With stricter regulations, higher lending standards, and greater responsibilities, its not a space to enter lightlybut for those prepared to do it right, the rewards can be substantial.

From meeting licensing rules and satisfying lender criteria to budgeting for additional fees and maintenance costs, successful HMO landlords know that preparation is key. Before applying, ensure your documentation is in order, your experience is clearly presented, and your financials support the scale of your intended investment.

At Mayfair Commercial Mortgages, we specialize in helping investors secure tailored HMO financing with trusted lenders across the UK. Whether youre an experienced landlord expanding your portfolio or taking on your first shared property, our expert team can guide you through every stepfrom application to approval. With our support, you can turn your HMO goals into a sustainable, income-generating asset.