Financing, Licensing & Planning HMOs in the UK
Why HMOs Still Matter in 2025
The UK’s HMO market continues to attract landlords seeking enhanced yields and long-term rental demand. But behind the higher returns lies a more complex regulatory and financing landscape. For portfolio landlords and first-time investors alike, success depends on understanding how to navigate HMO finance, licensing, and planning from the outset.
This guide addresses the essential questions and strategic considerations that underpin a successful HMO investment.
What Is a House in Multiple Occupation?
Legally, a House in Multiple Occupation (HMO) is defined under the Housing Act 2004 as a property rented by three or more people from at least two households who share facilities like kitchens or bathrooms. The tenants must use the property as their main residence.
This covers a wide variety of housing types, including:
- Professional house shares
- Student lettings
- Bedsits and room-only agreements
HMO Classification: How Many People Count?
A property becomes an HMO when three or more people, from two or more households, share amenities. It becomes a large HMO when there are five or more tenants, triggering mandatory licensing requirements in England.
This can vary from council to council across the UK, as many have their own definition of what a HMO is, so some councils may only require licenses for 5 tenants, for example.
What Use Class Is a HMO?
In planning terms, HMOs fall under:
- Class C4: 3–6 occupants (small HMOs)
- Sui Generis: 7 or more occupants
Some councils impose Article 4 Directions, removing permitted development rights and requiring planning permission for changes from C3 (single family) to C4. Always check with the local authority before proceeding.
Do You Need Planning Permission for a HMO?
It depends on the location and size:
- In non-Article 4 areas, converting a home to a C4 HMO (up to 6 tenants) may not require permission.
- In Article 4 areas, planning permission is needed regardless of tenant number.
- Properties with 7 or more tenants (sui generis) always require planning consent.
Financing a HMO Property: Specialist Strategy Required
HMO mortgages differ from standard buy-to-let in both structure and lender approach. Most are underwritten by specialist or intermediary-only lenders, often available exclusively via brokers.
Key Differences in HMO Lending:
- Valuation: Some lenders will use a pessimistic valuation for what the rental yield would be if rented to a single family rather than a HMO.
- Ownership: Limited company structures are often preferred, especially for tax efficiency.
- Experience: Some lenders require prior landlord experience, though first-time HMO buyers can still access finance.
If you’re weighing a limited company structure, our insights on commercial mortgage lending offer further strategic context.
Is Buying a HMO Worth It?
For many landlords, yes, but it depends on:
- Local demand
- Licensing costs
- Management bandwidth
- Your ability to structure finance and compliance appropriately
Higher gross yields are common, but returns must be measured against licensing, maintenance, and occupancy risks.
Licensing Requirements for HMOs
Properties that meet the definition of an HMO may need a licence, depending on location and the number of tenants. A large HMO (5+ tenants) must be licensed nationally.
Licensing typically requires:
- Minimum room sizes
- Fire safety measures and escape routes
- Shared amenities meet local standards
- Electrical and gas safety certificates
Failure to license a qualifying HMO is a criminal offence and can lead to fines or repayment of rental income.
Common Questions: HMO Investment FAQ
What is a House in Multiple Occupation?
A property rented by at least three people from more than one household who share amenities.
How many people count for an HMO?
Three or more tenants from at least two households. Depending on rules for the local council.
What use class is an HMO?
C4 for 3–6 tenants. Sui generis for 7 or more.
Is a B&B an HMO?
No. Bed and breakfasts are commercial premises, not residential HMOs.
Do HMOs always need planning permission?
Not always. C4 HMOs (3–6 tenants) are permitted in most areas unless Article 4 applies.
How do I check if a property is already an HMO?
Review the council’s public register of licensed HMOs and check planning records.
Can I turn my house into an HMO?
Yes, subject to planning, licensing, and compliance with minimum housing standards.
HMO vs Build to Rent: When to Scale Up
Some landlords explore scaling beyond shared houses into purpose-built rental blocks, known as Build to Rent (BTR). If you’re approaching HMO saturation or want greater control over design, yield, and tenant experience, our dedicated Build to Rent guide offers practical insight into structuring institutional-grade assets.
Subdividing a House for HMO Use: Planning Considerations
Dividing a property into separate units (e.g., bedsits or studios) requires both:
- Full planning permission
- Building Control sign-off for fire, ventilation, and structure
Be aware that this may change the asset’s classification and influence how lenders view its value and financeability.
Strategic Advice for HMO Investors
Whether you’re acquiring your first HMO or refinancing a mature portfolio, success lies in structuring finance around your ownership model, licensing obligations, and long-term goals.
At Henry Dannell, we work with landlords at all stages—from single asset acquisition to portfolio optimisation and BTR transition. If you’d like to explore tailored finance or licensing guidance, our team would be pleased to assist.
Let’s shape a strategy that works for your portfolio. Contact us for a confidential discussion.
Please note: this is a long term investment which you hope will generate rental income along the way and a profit when you sell the property, but bear in mind that if you need access to some cash, a property can take time to sell or remortgage. If house prices fall, you might not be able to sell for as much as you had hoped. You would have to make up the difference if the property sold for less than you owe – a risk that increases, the higher the percentage you borrow. If you sell for a profit, you may have to pay capital gains tax. Don’t forget that with a variable rate mortgage, your costs will rise if interest rates go up. This would eat into, or even wipe out, your income and profit. It is recommended that you also maintain access to emergency funds to cover your mortgage payments during ‘void periods’ that may arise whilst you have no tenant and the property is not let. Please also note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
