Houses of Multiple Occupations (HMOs) are often seen as a straightforward route to higher rental yields, but when it comes to mortgage finance, they are one of the most commonly misunderstood property types in the UK. Many landlords assume that any property let to unrelated tenants, such as students, automatically requires a HMO mortgage. Others believe that smaller student let properties will always be treated as standard buy-to-let. In reality the rules are far less clear-cut.

From a lending perspective, the definition of a HMO is not universal. It can vary significantly depending on the lender, the number of occupants, how the property is let, and whether the local authority requires licensing. On top of this, how the property is valued can materially affect how much you are able to borrow.

This guide explains how lenders define a HMO mortgage in practice, where the line is drawn between standard buy-to-let and specialist HMO lending, and why getting that classification wrong can result in a lower loan amount, higher rates, or a declined application.

What counts as a HMO?

While the legal definition of a HMO is set out is housing legislation, mortgage lenders apply their own classifications when assessing risk. These internal definitions often differ from local authority rules and from one lender to the next, which is where confusion commonly arises.

Many high street lenders take a cautious stance and exclude HMO mortgages altogether. NatWest and Virgin Money, for example, do not lend on HMOs under their residential or buy-to-let criteria. As a result, any property perceived as multi-occupancy may be declined outright, regardless of size or tenancy structure.

Specialist buy-to-let lenders take a more nuanced approach, typically defining a HMO by the number of occupants or lettable rooms rather than by tenant relationships. The Mortgage Works classifies a property as a HMO when there are five or more occupants, or between 5 and 7 lettable rooms in areas where multi-let properties are common. Properties below this threshold still qualify as a standard buy-to-let, depending on how their are let.

Other lenders focus on HMO licensing requirements and property layout. Fleet Mortgages defines a HMO as any property requiring a mandatory or discretionary HMO license, or one that has been significantly adapted for multi-occupancy use; such as bedrooms containing sinks, or where the property would be unlikely to sell as a typical family home.

This variation in lender definitions is critical and understanding how each lender defines a HMO is the first, and most important step in securing the correct HMO mortgage.

Student Lets vs Room-by-Room Rentals

One of the most important distinctions lenders make when assessing a HMO mortgage is how the property is let, rather than simply who occupies it. In particular, student let properties can fall into very different lending categories depending on whether the tenants are on a single joint tenancy or individual agreements.

Where a property is let on a single joint Assured Shorthold Tenancy (AST), many lenders are prepared to treat it as a standard buy-to-let, provided the number of occupants remains within set limits. Accord Mortgages allows up to 4 individuals on one joint tenancy under standard buy-to-let criteria (2 in Scotland). Skipton Building Society applies a similar approach, accepting up to 4 student tenants on a single AST without requiring specialist HMO mortgage criteria. The Mortgage Works goes a step further, and generally does no classify a property as a HMO unless it has 5 or more bedrooms, meaning smaller student houses may be considered a standard buy-to-let even where tenants are on separate agreements.

By contrast, room-by-room rentals are almost always treated as HMOs. This structure introduces higher perceived management and vacancy risk, which pushes the property into specialist HMO lending. West One Loans accepts student lets on a single AST under standard criteria but requires properties let on a room-by-room basis to be placed on its dedicated HMO product range (up to 6 beds).

The Difference Between Small HMOs and Large HMOs

Once a property moves beyond small-scale multi-occupancy lenders typically tier based on size. Most lenders consider HMOs with up to 6 bedrooms to fall within the “small HMO” category. CHL Mortgages defines a small HMO as properties with a maximum of six lettable rooms, while Aldermore similarly accepts HMOs up to 6 bedrooms under its standard HMO mortgage criteria. These properties generally attract more competitive rates and high loan-to-value limits than larger multi-lets.

Large HMOs, typically defined as 7 or more bedrooms, are treated as a separate asset class. At this point, lenders tend to view the property as a semi-commercial investment rather than a residential buy-to-let. As a result, additional requirements are common. InterBay requires applicants to demonstrate at least two years of sector experience when borrowing against large HMOs. Quantum Mortgages offers a specific product range for large HMOs with no maximum room count, but similarly expects evidence of at least 2 years of experience.

Bricks & Mortar vs Commercial Yield

How a HMO is valued is one of the most decisive factors in determining both loan size and loan-to-value, and it often comes as a surprise to landlords how widely this can vary between lenders.

A Bricks & Mortar valuation assesses the property in the same way as a standard residential home, using comparable sales evidence from the local market. In this scenario, the valuer considers what the property would sell for if purchased by an owner-occupier, largely disregarding the rental income it produces. Fleet Mortgages typically adopts this approach, valuing HMOs on comparable evidence rather than yield. While this method can suit properties in strong residential areas, it may restrict borrowing where the property’s income far exceeds its open-market residential value.

By contrast, a Commercial or Investment valuation is based on the property’s rental income and achievable yield. This approach is more common for adapted HMOs where the layout no longer reflects a typical single-family dwelling.

Kent Reliance allows HMOs with 5 to 6 bedrooms to be valued on an investment basis where the property has been adapted ( such as the inclusion of 3+ bathrooms or 2+ kitchens). Paragon applies a similar approach, carrying out investment valuations where a property is no longer considered a single dwelling, often at occupancy levels of five or more.

The key point is that the valuation method is not universal. Two lenders may assess the same HMO in entirely different ways, leading to different outcomes. Choosing a lender aligned with how your property operates is often critical to maximising leverage.

Do I need a License for a HMO Mortgage?

Licensing is a fundamental underwriting requirement for HMO mortgages. In fact, most lenders will not proceed to completion unless they are satisfied that the property either holds the correct license or is legally exempt.

Zephyr Homeloans insists on a copy of the HMO license or proof that a valid application has been submitted before completion, ensuring compliance with local regulations. The Mortgage Works takes a more cautious stance, declining applications if the valuer believes the property breaches licensing requirements, even if the landlord claims to have one. This means that the layout, rooms sizes and occupancy levels assessed during the valuation must align with the requirements of the local council.

West One Loans list unlicensed HMOs as unacceptable security regardless of whether the landlord intends to apply for a license after purchase. Because licensing schemes can vary widely between local authorities it is essential that landlord confirm whether a license is required, and that the property meets the specific standards imposed by the council.

High Street or Specialist Providers

For HMO investors the difference between high street lenders and specialist providers is often the difference between approval and outright decline.

Lenders such as NatWest explicitly exclude HMOs from their residential and buy-to-let lending, even where a property generates strong rental income. While some high-street lenders do accept student lets, they typically apply stricter LTV caps.

Specialist HMO lending takes a very different approach with higher LTVs and more flexibility. InterBay, Kent Reliance, and Zephyr Homeloans all offer up to 80% LTV on HMO products, subject to experience, licensing and property layout. Zephyr, for example, caps lending at 80% LTV for up to £750k.

Manual Underwriting for Complex Assets

Manual underwriting plays a critical role for properties that blur the line. Automated credit systems struggle with assets that sit between definitions, such as Hybrid Multi-Unit Freehold Block (MUFB) containing HMOs. CHL Mortgages explicitly offers products for Hybrid MUFBs but requires them to be placed on their Large MUFB product range. Quantum Mortgages offers manual underwriting for HMOs with unlimited rooms and no minimum income requirement, provided the applicant demonstrates relevant sector experience.

Getting the Right HMO Mortgage Strategy

Securing the right HMO mortgage requires more than identifying a competitive interest rate. It hinges on understanding three core factors: Capacity (a 4-bed student let vs a 7-bed room-by-room let), Tenancy Structure (single AST vs room-by-room), and Valuation Method (bricks & mortar valuation vs commercial yield). Misjudging any one of these can lead to reduced borrowing, delays or a declined application.

The variation in lender policy is significant. A 4-bed student property may be treated as a standard buy-to-let by one lender, while another may classify it as a HMO based solely on tenancy structure. Similarly, two lenders may value the same property in entirely different ways, producing materially different loan outcomes.

This is where specialist knowledge matters. With access to a broad range of lenders, including specialists like Quantum, Paragon and InterBay, AALTO Mortgages helps landlords navigate these grey areas, ensuring each property is placed with a lender whose criteria align with how the asset is actually used. As licensing rules, valuation approaches, and lending thresholds continue to evolve, having the right strategy from the outset can make a substantial difference to both approval and borrowing potential.