How Do HMO Mortgages Differ from Standard BTL Mortgages

If you’re a property investor looking to boost returns, you’ve probably considered Houses in Multiple Occupation (HMOs). The rental yields can be excellent, but what about the financial side? That’s where things get a little more specialised.

Lenders assess HMO mortgages differently from standard Buy-to-Let (BTL) loans.

Here’s what you need to know.

The Cost: What You’ll Pay (and Why)

Let’s start with the obvious: HMO mortgages usually have higher interest rates than standard BTL mortgages because

• Higher interest rates: HMOs are seen as higher risk and more complex, so lenders build in a small premium on the interest rate.

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Valuation: How Lenders See HMOs

Valuation is one of the biggest differences between HMO and standard BTL mortgages.

Standard BTL: Valued mainly on comparable sales (“bricks and mortar”).

HMO: Valued primarily on income — how much rent the property generates, often assessed room by room.

Valuation methods:

• Bricks & Mortar / Vacant Possession: Used for smaller HMOs (3–6 tenants). Based on condition, size, and recent local sales.

• Commercial Investment Valuation: Used for larger HMOs (7+ tenants). Based on rental income, operating costs, yield, licensing, and planning status.

Note: HMOs rarely qualify for automated valuation model (AVMs) or free valuations, which can add to costs.

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Investor Experience:

Some lenders do want to see previous HMO or BTL experience under your belt; however, there are a limited number of lenders who accept first-time landlords for HMO’s (FTL).

The challenges for first-time landlords are:

• Limited lenders available
• Higher interest rates
• Stricter stress rates

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How can Advocate Finance help?

HMOs aren’t for everyone – but they can be rewarding. If you’re unsure, our team at Advocate Finance can help. We specialise in HMO, MUFB, and complex buy-to-let finance, providing tailored solutions for landlords across the UK.

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