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What is an HMO?

A House of Multiple Occupancy (or HMO) is a residential property rented out to at least 3 unrelated occupants who share facilities, for example, a kitchen or bathroom. HMO rental payments often include all bills (utilities and council tax).

Are there different types of HMO’s?

  • Small HMO’s are generally 3 unrelated occupiers or more (4 or fewer bedrooms).
  • Medium HMO’s are often 4-6 bedroom properties.
  • Larger HMO’s 7+ bedrooms are often seen and can include student accommodation.

HMOs are generally seen as good investment opportunities due to their higher than usual rental yield – renting a property room by room generally gives investors a greater level of income.

For more information please contact our expert HMO mortgage brokers on 020 7220 5100 or click here for more contact options.


What interest rates can you expect on an HMO mortgage?

HMO mortgages tend to have slightly higher interest rates when compared to regular buy to let mortgages. This is because there are fewer lenders in the HMO mortgage market compared to lenders who offer regular buy to let mortgages.

At Coreco Commercial we can secure HMO finance at very similar rates to more traditional buy to let mortgages. We are Whole of Market and have established relationships with specialist HMO lenders who can assist both First Time HMO Landlords and Professional Landlords.


Things to be aware off

While on the face of it an HMO just seems like a buy to let mortgage with multiple people and individual rent contracts, there are lots of extra restrictions to consider. These restrictions come from both the government and local authorities as well as lenders themselves. Some examples that people often forget with HMOs are:

  • Higher startup costs compared to a traditional buy to let as there are a greater number of health and safety regulations to comply with and have checked by a competent professional.
  • Requirement for an HMO licence. Please check with the local council planning and HMO licence departments for specific requirements of the respective local authority.
  • HMO mortgages can be more complex than regular residential or buy to let mortgages and can require higher deposits. At Coreco Commercial we have lots of experience with a range of lenders so we can support you through this process.
  • If you’re looking to purchase or convert an existing property into an HMO, and you are not experienced in managing this type of property it is advisable to instruct a specialist letting agent who are experienced in doing so.
  • Always ensure that the correct planning consents have been attained for any property being purchased to operate as a HMO. It is also advisable to speak with the local council planning department if you are to planning to convert a property into a HMO – as there may be other restrictions such as Article 4 areas.


HMO Mortgage Stress Tests

As with standard buy to let mortgages, when you apply for an HMO mortgage the lender will conduct a stress test. This is to make sure that you can afford to repay your mortgage with your rental income should interest rates rise.

Typically a stress test will look at the potential income from the property and whether that is enough to cover the mortgage should interest rates rise. Generally, lenders like to see the income generated from the rent cover between 125-145% of the mortgage interest cost.

Please ensure you have taken tax advice from a suitably qualified accountant/tax advisor to ascertain how best to structure the ownership of any HMO (Personal vs Ltd Co).


HMO Experience Requirements

When approaching lenders for an HMO mortgage they typically like to see borrowers who are experienced landlords. However, there are a few lenders in the market that are willing to lend to first-time landlords.



  • How do I change the use of a residential property to an HMO?

    Before you consider changing your property into an HMO, you must contact your local council to check whether a licence is required.  

    In 2010, the government introduced an alteration to planning regulations which meant that an owner of a residential property (Class C3) would only be able to convert the property into an HMO (Class C4) if planning permission had been granted.  

    The legal consideration given by local councils which can grant the application is called an Article 4 Direction. If it is not granted, it will remove the right to carry out certain types of ‘permitted development’. 

    In some instances, planning permission can be difficult to obtain. Be aware, local authorities in the UK have different views on granting HMO licences.

    It’s important to research the views of your local council, or the area you are looking to purchase an HMO property in thoroughly before applying for the licence as you may not be able to obtain it.

    More information can be found on your local council website.  

  • How can I apply for an HMO licence?

    If you are able to apply for an HMO licence, you need to do so through your local council. The application can be carried out by yourself, or you can ask a managing agent to do it on your behalf.  

    A licence is valid for no more than 5 years and must be reapplied for in advance of the existing one running out. What’s more, an existing licence cannot be carried over into a new property. For example, if you purchase an HMO that already has a licence through the current owner, you will be required to apply for a new licence yourself before purchasing the property.  

    Upon applying for your licence, important information surrounding the property will also need to be provided to the council. There include the details of;  

    • The freeholder of the property (if there is one or any other owners of the property) 
    • Tenants who have more than three years left on their existing tenancy 
    • The mortgage lender, if you have one 
  • How much does an HMO licence cost?

    The cost of an HMO licence will vary depending on the individual local authorities. There is usually a non-refundable admin fee for applying, regardless of whether or not the licence is granted. 

    To confirm the exact cost, it’s best to contact your local council for more information.  

  • Are there penalties for not having HMO licence?

    The penalties for not having an HMO licence can be severe. It is considered to be a criminal offence if you are the landlord of an HMO which should be licenced, but is not. As a result, the penalty fine could be up to £20,000 and you may be ordered to repay the equivalent of 12 months’ rent.

    Alternatively, if the tenants are receiving housing benefit, you will be ordered to repay 12 months’ housing benefit to the council. Breaking the terms of your licence could also see you fined up to £5,000, and if you broke the licence terms by renting to more tenants than specified, you could be fined up to £20,000. 

    As a landlord, it’s also important to understand that if your HMO is not properly licenced, you may not be able to evict tenants in situations of difficulty. Ensure you carry out thorough research before applying for the HMO licence you think you need.  

  • What is a Section 257 HMO?

    A Section 257 HMO refers to a specific type of HMO. It carries more regulations surrounding it so it’s important to ensure you have thoroughly reviewed the type of HMO licence you will need, and understand the difference.  

    A Section 257 HMO is a whole converted property rather than individual dwellings. Similar to a standard HMO, the property has been converted into self-contained flats however, less than two-thirds of the flats are owner-occupied. Most importantly, the conversion did not comply with the relevant Building Regulations in force at that time, and still doesn’t. For reference, you should access the appropriate building standards as listed by the Building Regulations 1991 or 2000 (whichever were in force at the time of the conversion) to confirm.

    This type of property requires an additional licence and they can be difficult to navigate. It’s the responsibility of the property’s freeholder to ensure they have applied for it if required. Local authorities may operate their own scheme but its best to check with your local council.  

  • What is a Multi-Unit Freehold Block?

    Are you looking to maximise the profit from your HMO? Then a Multi-Unit Freehold Block (MUFB) could be a good solution. 

    A Multi-Unit Freehold Block is a property divided into self-contained flats, but instead of having individual leaseholds it’s all held under a single freehold title. Often, a Multi-Unit Freehold Block is converted from a single residence with each flat containing its own kitchen and bathroom facilities, but sharing the hallways and garden. 

  • Why do I need a different Multi-Unit Freehold Block mortgage?

    When looking for a lender to finance a Multi-Unit Freehold Block, it’s important to identify that a different type of mortgage will be required. When compared with an HMO, each unit is self-contained with its own private entrance and separate Assured Shorthold Tenancy (AST).  

    Although multi-tenancies may sound complicated, we’re on hand to help. Make sure to flag this to your specialist HMO mortgage adviser so we can explore what options are available to you. 


CorecoImportant Information

The important bit

Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

A percentage of the mortgage amount may be charged depending on individual circumstances. A typical fee is 1%.

Coreco Commercial is a trading style of Coreco Specialist Finance. Coreco Specialist Finance. Registered Office: 117-119 Houndsditch, London EC3A 7BT. Registered in England Number: 06851546

Coreco Specialist Finance Limited is authorised and regulated by the Financial Conduct Authority.

Some types of finance offered by Coreco Commercial are not regulated. Please contact us for more details.

Coreco Commercial advisers are experienced mortgage advisers but we are not tax advisers. Please seek independent tax advice if required before you decide to proceed.


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We know that all our clients are unique, and therefore the finance you require needs a different approach. We pride ourselves on providing a client focussed journey built around your needs and goals.

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