A house in multiple occupation is a property let to three or more people from more than one household who share facilities. From a lending point of view it is a different product to a standard buy to let: fewer lenders, a different valuation method, experience requirements, and licensing conditions attached to the loan.
Standard buy to let versus HMO lending
| Standard buy to let | HMO | |
|---|---|---|
| Lenders available | Most of the market | A specialist subset |
| Valuation basis | Bricks and mortar comparables | Often investment value based on rental income |
| Landlord experience | Usually not required | Frequently required |
| Rate | Lower | Typically higher |
| Licensing | Rarely relevant | Central to the lender's decision |
| Rental assessment | Whole-property rent | Often room-by-room |
The valuation difference is the one that matters most.
Investment valuation, and why it cuts both ways
Many HMO lenders value the property on the income it produces rather than on what similar houses sell for.
That can work strongly in your favour. A converted six-bedroom HMO generating substantial room-by-room rent may be assessed well above what the same house would fetch as a family home. A higher valuation means a lower loan to value, which can mean a better rate and a larger loan.
But it works the other way too. If the property is later let more conventionally, or the room rate falls, the investment valuation falls with it. And an investment-valued HMO can be harder to sell — your buyer pool narrows to other investors who can obtain the same specialist finance.
Some lenders will value on whichever basis produces the lower figure. Which basis a lender uses is one of the first questions we ask on your behalf.
Experience requirements
A large number of HMO lenders want a track record — commonly at least twelve months as a landlord, sometimes two years, and occasionally specific HMO experience.
For a first-time landlord wanting to start with an HMO, this narrows the field considerably. Options exist but are fewer and generally priced higher.
A common and sensible route is to hold a standard buy to let for a year first, then move into HMO lending with the experience requirement satisfied.
Licensing is part of the lending decision
Larger HMOs require a mandatory licence nationally. Councils can additionally operate additional licensing for smaller HMOs and selective licensing for ordinary rented property in defined areas.
Lenders care because an unlicensed HMO that should be licensed is unlawfully let, which puts their security at risk. Expect to be asked whether a licence is in place or has been applied for, and some lenders will make the licence a condition of the offer.
Planning is separate again. Converting a family home into a shared house can need permission where a council has restricted it.
Confirm the current licensing and planning position with the relevant council before you offer. These rules are set locally and change. A property that cannot be licensed will not be lent on.
Article 4 directions
Worth understanding as a concept, because it affects HMO investors nationally.
Ordinarily, converting a family dwelling into a small shared house for up to six people can be done under permitted development, without a planning application. A council can remove that permitted development right in a defined area using an Article 4 direction, meaning a planning application is then required.
Councils typically use these in areas with high concentrations of shared housing, which in most university cities means precisely the streets where student demand is strongest.
Whether such a direction applies to a specific Leicester street is a question for the council, and the answer changes over time. Ask before you buy — it determines whether you can lawfully do what you are planning to do.
Rooms, room sizes and compliance
HMO licensing brings minimum room sizes, fire safety requirements, and standards for kitchens and bathrooms relative to occupant numbers. Fire doors, interlinked alarms, emergency lighting and protected escape routes are commonly required.
These are real costs. On a property that needs upgrading to licensable standard, they can run to a substantial sum, and they normally have to be funded outside the mortgage. Get a realistic figure before you commit.
Is it worth it?
Often, yes — HMOs generally produce materially higher yields than single lets, which is why experienced landlords gravitate to them.
But the gap narrows once you account for the higher mortgage rate, licensing and compliance costs, higher management burden, higher turnover, and a narrower resale market. It suits a landlord who wants a business rather than an investment.
Talk it through before you offer
We arrange HMO lending regularly and can tell you which lenders will consider a given property, on what valuation basis, and whether your experience meets their requirements.
Call 0116 277 7536 or see buy to let mortgages in Leicester.
More guides: buy to let guides for Leicester.
