Buy To Let Mortgage For HMO

Buy-to-let mortgages for HMOs are designed for landlords letting properties to multiple tenants who share facilities such as kitchens and bathrooms. Some smaller HMOs fit standard buy-to-let criteria where no licence or investment-style valuation is required, and that affects both the choice of lender and the overall cost of borrowing.

HMO buy-to-let mortgages need correct structuring from the outset to avoid lender declines, valuation problems and licensing complications. Lenders assess tenant numbers, the property layout, the licensing position, the rental structure and whether the property qualifies for standard buy-to-let treatment or needs specialist HMO lending.

Mortgage Lane gives specialist support on HMO buy-to-let mortgage applications, from smaller unlicensed HMOs to larger licensed multi-tenant properties, for first-time and experienced investors. We choose the lender on the property type, the valuation method, the licensing status and the rental income.

Speak to a specialist to check your eligibility.

Multiple occupancy mortgage

A multiple occupancy mortgage is the name often used for an HMO mortgage, tailored to landlords managing properties let to multiple tenants. These mortgages come with specific criteria and lending conditions that reflect the extra management work and the risks associated with multi-tenant properties.

Not quite sure what you need?

If you are not sure what you need, request a call back from one of our expert mortgage advisers.

• Call backs during our opening hours, Monday to Friday, 9am to 6pm
• Timescales to offer vary by lender and case, and your adviser will explain what to expect

Loan to value ratios (LTVs)

Loan-to-value (LTV) ratios on buy-to-let mortgages for HMOs can be lower than on standard BTL mortgages. Each lender sets its own maximum, which depends on the property and the borrower's profile, and an adviser checks the lender's current criteria on each case. The LTV sets the maximum loan against the property's value, and on an HMO the lender's figure reflects the added risk and management complexity of a multi-tenant let.

Bricks and mortar valuation

A bricks and mortar valuation is the traditional method: the valuer assesses the property's value based on its physical characteristics and on comparable sales in the area. It does not consider rental income or the property's potential as an HMO, so it may not capture what an HMO earns, although the lender still uses the rent to assess affordability.

Licensing and planning for HMOs

Not all HMOs require licensing or planning permission. In England, an HMO occupied by five or more people forming two or more households needs a mandatory licence, and councils can require smaller HMOs to be licensed too. Planning requirements depend on the number of occupants and on local authority regulations such as an Article 4 direction. Some smaller HMOs with fewer tenants need no licence, and some properties used as HMOs need no planning permission because the change falls within permitted development rights or the council's own criteria.

Residential valuation and suitable lenders

Properties that need no HMO licensing or planning permission can often be valued as residential properties on the bricks and mortar method, using comparable sales. Some buy-to-let mortgage lenders will ignore the HMO use for valuation purposes on these properties. That can suit landlords, because the application is simpler and the terms may be more favourable, with lower interest rates than commercial products.

Commercial MV1 valuation

A commercial MV1 (Market Value 1) valuation works differently from the bricks and mortar or hybrid methods. It values the property on its income-generating potential rather than on its physical characteristics alone, which is closer to how commercial properties and larger residential blocks are valued, where income is what drives the value.

Standard buy-to-let mortgage products are typically unsuitable for HMO landlords who want a commercial MV1 valuation, so those borrowers apply to commercial buy-to-let mortgage lenders that specialise in this type of financing. Commercial lenders assess and underwrite the loan on the property's income potential, and their terms can be more flexible on larger or more complex HMO investments.

Buy to let mortgage calculator for HMOs

For an indicative figure, use the HMO calculator on our HMO mortgages page. It estimates the loan an HMO's rent could support, capped at 75% of the property's value. The result is subject to lender criteria and valuation, and it is not a mortgage offer.

Questions on buy to let mortgages for HMOs

What is a buy-to-let mortgage for an HMO?

A buy-to-let mortgage for a House in Multiple Occupation (HMO) is a loan designed for landlords who rent a property to multiple tenants who share common facilities. On small HMOs we can arrange standard buy-to-let products, which come with lower interest rates. The trade-off is that the lender values the property as a residential property rather than on an investment basis, which can be enough for a smaller HMO that has not been significantly adapted for multiple occupancy.

What is the typical loan-to-value (LTV) ratio for an HMO mortgage?

It varies by lender and by property, and it can be lower than on a standard buy-to-let mortgage. An adviser checks each lender's current maximum.

What is a hybrid valuation?

A hybrid valuation combines a bricks and mortar assessment with some recognition of the property's rental income potential, so it can produce a higher figure than a purely residential valuation.

Do all HMOs need to be licensed?

No. Licensing requirements depend on the number of tenants and local authority regulations.

Are there lenders who ignore HMO usage for valuation purposes?

Yes. Some buy-to-let mortgage lenders ignore the HMO use for valuation and treat the property as a standard residential property.

What is a multiple occupancy mortgage?

It is a mortgage tailored to landlords managing properties let to multiple tenants, who are often unrelated.

What is a bricks and mortar valuation?

It values the property on its physical characteristics and comparable sales, ignoring its rental income potential.

Can HMOs be valued using a commercial MV1 valuation?

Not on a standard buy-to-let mortgage. For an MV1 valuation, borrowers approach commercial buy-to-let mortgage lenders.

Do all HMOs require planning permission?

No. It depends on the council's rules and whether the change of use falls within permitted development rights.

Are interest rates higher for HMO mortgages?

They can be, because lenders see more risk in a multi-tenant property.