Houses in Multiple Occupation (HMO)
Information:
The status of a property as an HMO will be determined by the valuer
Definition
We consider the following types of property as a HMO
- A property occupied by five or more people
- A property with five to seven lettable rooms in an area commensurate with multi letting
Properties subject to selective licence are only classified as a HMO where at least one of the above conditions are met.
A property occupied by 4 people or fewer, even if licensed and sharing the characteristics of a HMO, is not eligible for HMO lending. The rental assessment will be based on a single family figure and a non HMO product should be selected.
Valuation
- For all HMO applications, including Further Advances, a Specialist Security valuation will be required, which is payable by the client. See our valuation page for fees
- For Further Advance and Remortgage applications, before a valuation can be carried out, we'll require a copy of the HMO licence. This needs to be attached to the case where the case Requirement has been generated. If this isn’t received within 15 working days, the application will be cancelled
- You'll need to update us with details of a selective licence. You can do this by emailing us with 'selective license HMO' as the subject.
Criteria
- Minimum property value is £100,000
- Maximum 75% LTV (See our table for maximum loan amount per property)
- 175% Interest Cover Ratio (ICR) applies to all HMO applications, regardless of tax status.
- For remortgage applications, or borrowers considered a portfolio landlord, there is no need to validate Buy to Let or HMO experience
- For purchase applications where the applicant is not a portfolio landlord, we may need to validate BTL/HMO experience. We define acceptable experiences as:
- 2 years’ ownership and letting experience of a BTL property, or,
- 1 year’s ownership and letting experience of an HMO property.
- We won't accept Let to Buy applications
- For valuation purposes, we'll assess rental cover on a multi-tenanted basis
- All let properties will be subject to an:
- Assured Shorthold Tenancy agreement
- Short Assured Tenancy agreement
- Private Residential Tenancy Agreement in Scotland (there is no maximum tenancy)
- Occupation Contract in Wales (must be a minimum of 6 months, maximum of 36 months).
- Single and multiple tenancy agreements accepted
- A property must have no more than four habitable storeys and no more than one kitchen
- Properties consisting of more than one self-contained unit under a single title are not acceptable
- The property must offer a communal living room. We can consider a large open plan kitchen/living room if it is big enough to meet reasonable occupant needs as a communal room.
Please see our general criteria for full details.
Mandatory HMO licensing
Under the Housing Act 2004, all large HMOs in England and Wales must be licensed. A large HMO is 3 or more storeys and occupied by 5 or more persons forming at least 2 separate households.
HMO criteria
We'll lend on properties that need an HMO licence if they meet the following criteria:
- Remortgage and further advance: A relevant current licence must be in place. There may be some circumstances where proof that a licence has been applied for are acceptable.
- Remortgage converting a residential property to a buy to let: Proof that the relevant licence has been applied for.
- Purchase and Let to Buy: Proof that the relevant licence has been applied for.
- All HMO applications must comply with the most current property standards, such as minimum sizes for sleeping rooms. This is the case even where the landlord has a current licence received before the standard changed, as they'll need to meet the standard to renew it.
If a landlord has a licence that is not suitable for their use of the property, we'll decline. We'll require proof that the correct licence has been applied for or obtained.
HMO valuations
We'll instruct our valuers to ensure that the property conforms to any prevailing legislation. For example, if any rooms let for sleeping do not meet the current minimum sizes, they'll be excluded from the lettable room count and the Gross Rental Valuation.
See our Valuations page for more details on appeals.
Small HMO
Sometimes selective or additional licensing applies to a small HMO, also known as a C4. We don't treat these applications as HMOs unless they meet our definition of HMO above.
Article 4 direction
Article 4 direction is used by local authorities to control the quality of housing in a given area. It limits specific kinds of development, such as converting a property from residential to an HMO.
We'll lend on properties subject to Article 4 direction. We don't treat these applications as HMOs unless they meet our definition of HMO above.
If the property is within an Article 4 direction, we need proof of either:
- confirmation of Article 4 consent
- Certificate of Lawful Use
We need this before the valuation, and for all application types.