Houses in Multiple Occupation (HMOs) can generate higher rental yields than standard buy-to-let properties, making them an attractive option for property investors. However, financing an HMO requires a specialist mortgage, and the lending criteria are different from a standard buy-to-let.
What Is an HMO?
An HMO is a property rented out to three or more tenants who form two or more separate households and share facilities such as a kitchen or bathroom. Common examples include:
- Student houses
- Professional house shares
- Bedsits with shared facilities
- Converted properties with individual rooms let separately
In Northern Ireland, HMO licensing is managed by local councils. Properties meeting the HMO definition require a licence, and landlords must comply with specific standards covering fire safety, room sizes, and facilities.
How Are HMO Mortgages Different?
HMO mortgages differ from standard buy-to-let in several important ways:
Fewer lenders: Not all buy-to-let lenders offer HMO products. The market is more specialist, though it has grown in recent years.
Higher deposit requirements: While standard buy-to-let typically requires 25%, HMO mortgages often require 25% to 30% or more, depending on the lender and property.
Different rental assessment: Lenders assess HMO rental income differently. Some calculate based on individual room rents, while others apply a discount to reflect the higher management costs and potential void periods.
Property criteria: Lenders may have specific requirements about the number of rooms, property condition, and licensing status. Some will only lend on properties with a valid HMO licence already in place.
Experience requirements: Some HMO lenders require the borrower to have experience as a landlord, often a minimum of one to two years managing rental properties.
Why Invest in an HMO?
Higher yields: Renting by the room typically generates more income than renting to a single household. A four-bedroom property let as an HMO at £400 per room generates £1,600 per month, compared to perhaps £800 to £1,000 let to a single family.
Diversified income: With multiple tenants, a single vacancy does not leave you with zero rental income. If one tenant moves out, the others continue paying.
Strong demand: In areas near universities, hospitals, or major employers, demand for shared accommodation can be consistent.
Considerations and Risks
Higher management burden: HMOs require more hands-on management than a single-let property. More tenants means more wear and tear, more maintenance, and more administration.
Licensing and compliance: HMO licensing involves meeting specific standards and paying licence fees. Failure to comply can result in fines and prosecution. You must also comply with fire safety regulations, which may require additional fire doors, alarms, and escape routes.
Mortgage costs: HMO mortgage rates tend to be slightly higher than standard BTL rates, reflecting the additional complexity and risk.
Tenant turnover: Particularly in student areas, tenant turnover can be higher, leading to regular void periods and re-letting costs.
Insurance: Standard landlord insurance may not cover an HMO. You will need specialist HMO landlord insurance.
The Application Process
Applying for an HMO mortgage typically involves:
- Consultation with a broker experienced in HMO lending
- Assessing your experience and the viability of the investment
- Property details including current or proposed HMO licence status
- Rental income assessment based on room-by-room letting
- Valuation by a surveyor experienced in HMO properties
- Formal offer and completion
Finding the Right Lender
Because fewer lenders operate in the HMO space, working with a mortgage broker who has access to specialist lenders is particularly important. At CGR Financial, we advise property investors across Northern Ireland on buy-to-let mortgages, including HMO finance.
Contact us to discuss your HMO investment plans.
Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within was correct at the time of publication but is subject to change.