HMO Mortgage Calculator: Purchase and Remortgage

Check what a lender will lend on your HMO before you commit

Most HMO calculators stop at the loan. This one also asks the questions a lender asks: is the licence in place, does the planning use match the number of rooms, is the fire safety work done and what is the EPC rating. Those answers decide whether a loan you can afford on paper is a loan you can actually get.

Choose purchase or remortgage, enter the rooms and the total monthly rent, and the calculator shows the most the rent and value will support, the cash you need, the monthly cash flow and a checklist of anything that could stop a lender.

How to Use the HMO Mortgage Calculator

Start with the property. Enter the number of lettable bedrooms and the total monthly rent from all of them. Rooms rarely let at the same price. Add each one up. Lenders assess the combined room rents, and a five-bed HMO bringing in £3,250 a month is assessed on that figure, not on the rent of a single tenancy of the whole house.

Then set the licence, planning and safety fields. They leave the sums alone but alter the checklist, and a red item there matters more than a few thousand pounds on the loan.

Last, choose who is borrowing. A limited company or a basic-rate taxpayer is usually tested at 125% rent cover. A higher-rate taxpayer borrowing in their own name is usually tested at 145%. If you have a lender in mind, the advanced box lets you overwrite the loan to value, stress rate and rent cover. Current lender pricing is on our HMO mortgage rates page.

The Two Tests Behind Every HMO Loan

An HMO lender applies two limits to the loan and lends the lower of them.

The first is loan to value. Most lenders go up to 75% on a standard HMO, with some at 70% to 80%. Large HMOs and semi-commercial properties are usually lower, often 65% to 75%.

The second is rent cover, sometimes called the interest cover ratio. The lender starts with the annual rent and applies the cover it requires. A stress rate, commonly 5.5%, then gives the loan the rent can carry. At 125% cover and a 5.5% stress rate, £39,000 of annual rent supports about £567,000. At 145% cover and a 6% stress rate, £30,000 supports about £345,000. Which limit bites first depends on how much rent the property earns compared with what it costs.

Licence, Planning and Safety Checks

HMO Licence

In England a mandatory licence is needed when five or more people from two or more households share the property. Many councils also run additional or selective licensing schemes that cover smaller HMOs. A house with four tenants can still need one. Scotland starts at three unrelated occupants, and Wales and Northern Ireland have their own rules.

Lenders usually want the licence granted before completion. Some will proceed on proof that an application has gone in, but plenty will not. Letting without a licence you need is an offence, and councils can fine you or issue a rent repayment order.

Planning Use

Three to six unrelated sharers is Use Class C4. Seven or more is sui generis, which has no class of its own and needs specific planning permission. Where an Article 4 direction applies, converting an ordinary house to a C4 HMO needs full planning permission. Look up the direction before you look at the yield. A lender will ask for the decision notice or a certificate of lawful use.

Fire Safety and EPC

A fire risk assessment, a suitable alarm system and the right fire doors and emergency lighting are conditions of most licences, and valuers look for them. A property with an EPC rating of F or G cannot lawfully be let without an exemption. E is the lowest rating that can. Lenders increasingly prefer C or better.

Your Experience

First-time landlords have fewer lenders to choose from, and the loan to value on an HMO is frequently lower. Some lenders want a year of HMO experience on a purchase, others accept experience of other lettings, and a few lend to anyone with a strong case. The calculator flags where you sit.

Worked Example 1: Buying a Five-Bed HMO

A limited company buys a licensed five-bed HMO in a Midlands city for £280,000. The five rooms bring in £3,250 a month between them. It is C4 use with no Article 4 issue, the fire safety work is done, the EPC is a C and the directors already run an HMO. The rate is 5.75%, interest only, with a 2% fee and £4,000 of legal and valuation costs. Cleaning costs £120 a month and general fees such as safety checks, gardening and accountancy come to £60.

Annual rent is £39,000. The lender tests at 125% cover. Because the 5.75% rate is above the usual 5.5% stress rate, the test uses 5.75%.

• Maximum loan by loan to value at 75%: £210,000
• Maximum loan by rent cover: £542,609
• The lower figure wins: the loan is £210,000 and the deposit is £70,000
• Rent cover at the stress rate: 323%
• Monthly interest: £1,006

The cash to complete adds up like this.

• Deposit: £70,000
• Stamp Duty with the 5% higher rate for a company: £18,000
• Arrangement fee at 2%: £4,200
• Legal and valuation costs: £4,000
• Total: £96,200

The monthly cash flow comes out as follows.

• Rent at full occupancy: £3,250
• Voids at 8%: £260
• Management at 12%: £359
• Bills the landlord pays: £650
• Repairs: £200
• Insurance: £90
• Licence fee spread over five years: £25
• Cleaning: £120
• General fees: £60
• Left before the mortgage: £1,486
• Left after the mortgage: £480 a month, or £5,759 a year

That is a gross yield of 13.9%, a net yield of 6.4% and a cash return of 6.0% on the £96,200 put in. If rates rose two points the interest would reach £1,356 and the monthly surplus would fall to £130. The loan is not rent-limited here and more rent would not raise it. A bigger deposit or a lender with a higher loan to value would change the picture.

Worked Example 2: Remortgaging a Six-Bed HMO to Release Cash

A company owns a licensed six-bed HMO now worth £480,000 with £250,000 outstanding. The six rooms bring in £3,600 a month, which is £43,200 a year, and the owner wants to raise £100,000 for the next purchase. The new loan is £350,000 at 5.75% interest only, with a 2% fee and £2,500 of costs. Cleaning is £150 a month and general fees are £80.

• Maximum loan by loan to value at 75%: £360,000
• Maximum loan by rent cover at 125% and 5.75%: £601,043
• The £350,000 asked for is within the £360,000 limit
• Rent cover at the stress rate: 215%
• The arrangement fee is £7,000
• Cash released: £350,000 less £250,000, £7,000 and £2,500, which is £90,500

Raising money has a price. The monthly interest rises to £1,677, which leaves a loss of £148 a month after the mortgage, on bills of £780. If rates rose two points the loss would grow to about £731 a month. Switching without raising anything would cost £1,198 a month in interest and leave a surplus of about £332.

Ask for £150,000 instead and the loan needed is £400,000, which is £40,000 above the limit. The calculator shows that as a shortfall. The fix is a smaller release, a higher valuation or a lender that goes to a higher loan to value.

Worked Example 3: When the Rent Is the Limit

An individual paying higher-rate tax buys a five-bed HMO for £500,000, with the five rooms bringing in £2,500 a month, which is £30,000 a year. The lender tests at 145% cover. The rate is 6%, which is above the usual 5.5% stress rate, so the test uses 6%. The loan is interest only, with the same costs as Example 1.

• Maximum loan by loan to value at 75%: £375,000
• Maximum loan by rent cover: £344,828
• This time the rent is the limit: the loan is £344,828 and the deposit is £155,172, or 31% of the price
• Stamp Duty with the higher rate: £40,000
• Total cash needed: about £206,000
• Cash flow after the mortgage: negative, at about £870 a month

The gross yield is 6.0%, which is thin for an HMO. The lesson is that price matters as much as rent. The same house at £400,000 on the same rents would be limited by loan to value instead, at £300,000. A limited company tested at 125% cover would also borrow more on the same rent, which is why the borrower and the lender are part of the sum.

Stamp Duty on an HMO

In England and Northern Ireland an HMO bought as an additional property, or by a company, pays the standard residential rates plus 5 percentage points on every band. From 1 April 2025 the standard bands are 0% up to £125,000, 2% to £250,000, 5% to £925,000, 10% to £1.5 million and 12% above that. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax. The calculator does not give a figure for them.

Where an HMO is bought as a mixed-use or commercial property the rates can be different. Ask your solicitor before you rely on the residential figure. Rates and thresholds can change at a Budget, and we review this page after each one.

What Else Lenders Look At

Valuation. A valuer may value an HMO as bricks and mortar or on its income, and the two figures can be far apart. The calculator lets you enter a lower valuation because the loan is based on the lower of price and value.

Property size. Most lenders cap standard HMOs at six bedrooms. Seven or more is a large HMO, with a smaller lender panel and sometimes a lower loan to value. Many lenders also set a minimum property value of around £100,000.

Fees and terms. Arrangement fees on HMO loans commonly run from 1% to 2%, and fixed rates are often offered for two to five years. A longer fix can be tested at a lower stress rate, which can lift the loan the rent supports.

Fewer lenders do HMOs and the criteria are not the same from one to the next. A broker who deals with them every week can match the licence, planning position, size and your experience to the right ones, and can say when a property will not fit before you spend on valuation fees.

HMO Purchase or Remortgage: What Changes

On a purchase the loan is limited by the price or the valuation, whichever is lower, and you must bring the deposit, Stamp Duty and fees to completion. The licence usually has to be in place, or applied for, and a lender may ask about your HMO experience.

On a remortgage the current value sets the limit. The cash you release is the new loan less the old balance, any early repayment charge and the fees. Lenders look closely at occupancy, the tenancy agreements and the compliance paperwork, and a well-run HMO with a full licence history often qualifies more easily than a first purchase.

Next Steps

The calculator gives a realistic first view. A lender will use its own rent figure, valuation and criteria, and the result will differ. If you would like a lender match for a specific HMO, send us the address, how many rooms there are and where the licence stands, and we will say which lenders fit and what the likely terms are.

Frequently Asked Questions

Final Thoughts

Commercial Finance Network is a whole-of-market commercial finance broker working with property investors, developers and businesses across the UK and internationally. We work across the full specialist HMO lender panel and will tell you which lenders will engage with your property, what loan to value and rate to expect, and how to structure the application before anything is submitted.

We are directly authorised and regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a loan secured against it. Many HMO mortgages are not regulated by the Financial Conduct Authority in the way a residential mortgage is.

Call: +44 1494 622 111
Email: info@cfnuk.com

Related Pages

• Debt Servicing Ratios in Complex HMO Finance Deals – how lenders turn rent into debt service and why a deal can pass rent cover and still fail
• Why Some HMOs Cannot Be Financed – the valuation, licence and affordability issues that stop an HMO application
• Funding an HMO Conversion – how to finance a conversion and move to a longer-term HMO mortgage afterwards
• Buy to Let Mortgage Calculator – test rental cover on a single-let property