An explanation of HMO lending

In this post we discuss Houses in Multiple Occupation (HMO). HMOs are set to play an increasingly important role in the private rented sector over the coming years and there are growing levels of tenant demand for this type of affordable property.

We will examine what constitutes an HMO, what is driving demand for HMOs and the latest planning rules surrounding HMOs, in addition to giving expert opinion and insight from Citrus Mortgagess in-house experts.

Nick Blatcher, Director of, says “HMOs are an important component of the private rented sector, particularly for tenants seeking affordable accommodation. Demand for HMOs is set to increase over the coming years and it’s important that supply can keep pace. There are a limited number of specialist lenders who operate in this arena and we have the skills and experience to help landlords expand their portfolios in this area”.


What is an HMO?

An HMO is a property shared by three or more tenants who are not members of the same family and who share amenities, such as a hallway, kitchen, living room, or bedroom. An HMO can typically be a shared house, ‘bedsit’ style accommodation, student housing or boarding houses. A household can consist of a single person not related to anybody in the house.


Who typically lives in an HMOs?

A typical tenant of an HMO is a young single adult, such as a student or somebody claiming housing and other types of benefits. However, growing numbers of young professionals are choosing to live in HMO accommodation.


Do I need a licence to operate an HMO?

HMO  licencing was introduced in 2006. An HMO requires a licence if the property is three or more stories high and is occupied by five or more persons who form more than one household. Local authorities can also apply for selective licencing if they feel that an area is becoming over-populated with HMO properties, so landlords need to check their specific local authority’s policy towards HMOs. All HMOs must meet the property management regulation standards with regard to fire, gas and electrical safety, repairs and amenity provision.


What are the benefits in investing in HMOs?

With several individuals or households in occupation and the property let on a per room basis, HMOs offer the opportunity to generate attractive yields. Research from Paragon shows that HMOs generated an average yield of 7.8% during the second quarter of this year; more than any other property type.


What are the downsides?

Landlords looking to purchase HMOs need to do so with their eyes open. HMOs can be labour intensive and tend to require higher levers of maintenance than standard Buy to Let properties, plus there are statutory implications. There is generally a higher degree of tenant churn so landlords have to find new tenants frequently. Therefore, HMOs are typically best suited to experienced landlords.


Where can I find finance for HMO properties?

Due to its specialist nature there are only a small number of mortgage lenders that cater for HMO properties. Please get in touch and the expert advisers at Citrus Mortgages will be happy to guide you.