When is a HMO not a HMO?


Houses in multiple occupation (HMOs) have become increasingly popular as property investors look to maximise yields on their portfolios.

It’s easy to understand the attraction of HMOs to investors. Multiple tenants generate more rental income and there is less dependency and risk for the landlord if their income is derived from several sources. HMOs also make sense for tenants, because shared costs are usually cheaper. Go to any university town or city and you’ll inevitably find HMOs and if it also has a hospital or a high concentration of key workers, then HMOs become almost mandatory!

Technically a home becomes an HMO if it is occupied by 3 or more people forming 2 or more households, where more than one household shares amenities such as a toilet, bathroom and kitchen. In student land, large Victorian houses can make ideal HMOs and these types of properties are much sought-after by investors. If the house has 3 or more storeys and is occupied by 5 or more persons, then the property will require a licence from the local council.

Investors need to be aware of the potential requirement for both licencing and planning permission, when they decide to convert a property into an HMO. Planning and licencing are not connected, so investors need to ensure they cover both bases, especially if they are seeking mortgage funding.

From a planning perspective, the Town & Country Planning Act 1990 (TCPA) states that any change of use of a property requires planning permission, unless it is ‘non-material’ or permitted by General Permitted Development Orders (GPDO) which are based on the following classification:

  • C3 Dwellinghouse – a normal house or flat occupied by a single person, couple or family.
  • C4 House in multiple occupation – a normal house shared by between 3 and 6 unrelated individuals as their main residence. They will share facilities such as a lounge, kitchen and bathroom.
  • Sui Generis HMO – these are larger properties which cannot be classified as C3 or C4 and they will accommodate 7 or more unrelated individuals.

For HMOs it is permitted to change use from C3 to C4 (and back again) unless what is called an ‘Article IV’ direction is imposed by a local authority, which removes the permitted development rights. Change of use to a Sui Generis HMO does require planning permission. The planning rules can quickly become a minefield and you should take professional advice if in any doubt.

As I’ve already mentioned, licencing is a different issue and if a property is let to 5 or more tenants and has 3 or more stories with a shared kitchen, bathroom or toilet, then a mandatory licence will be required (unless the building has been converted into fully self-contained flats – in which case the property is not classified as an HMO!). Some local authorities will limit the number of HMOs in a particular area, so it’s worth checking before you commit to buy. Again, if in doubt, ensure you obtain professional advice.

There are then a raft of additional regulations covering everything from fire and gas safety to electrical checks and converting a property to an HMO needs to be undertaken with due regard to these rules. Managing the property may also be best undertaken by a specialist letting agent who is used to dealing with HMOs, you should expect higher maintenance costs than a standard buy-to-let property.

Most lenders will want to see that an investor has experience of managing HMOs and multiple tenants and that they have the financial means to cover rental voids. Lenders will ask for evidence of planning permission and licencing and investors need to understand how a lender will value a particular property. Some will value HMOs as a standard residential property and other will value on a commercial basis, using rental income to calculate a capital value. Expert intermediaries such as RLA Mortgages/3mc can advise on how different lenders will prefer to value HMOs.

And finally, experienced investors may buy property on a short-term loan and then, when it has been converted into an HMO, will re-leverage the property against the additional valued that has been created.

HMOs are growing in popularity with both investors and tenants and demand looks as if it’s set to remain strong for some time to come, especially for larger properties.


Please note lenders have different minimum criteria requirements and not all landlords and property types will qualify for this specific product. For further information contact RLA Mortgages.

This is a financial promotion and in no way should it be viewed as a personal recommendation or advice. Before a recommendation/advice can be given you should seek independant mortgage or financial advice.

RLA Mortgages is operated exclusively for the RLA by 3mc, which is authorised and regulated by the Financial Conduct Authority. FCA No. 302992. ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Although the FCA regulate the way the majority of mortgages are sold, in most cases they do not regulate buy to let mortgages. This means you may have less protection if things go wrong with a buy-to-let mortgage. All calls are recorded for training and monitoring purposes.

About Doug Hall

Doug Hall is a director of 3mc; a specialist mortgage provider within the buy-to-let sector. 3mc have been established for over 17 years working with lenders, mortgage intermediaries and the Residential Landlords Association (RLA) providing all types of buy-to-let mortgage solutions.
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