In the UK, investing in property has always been a great way to build wealth over time. But recent changes to the rules and limits on lending have made things a little harder for landlords who are interested in HMOs or serviced accommodations.
Here, we break down the main problems with getting an HMO mortgage in the UK and how these problems relate to the option of a serviced accommodation mortgage. We also compare these mortgages to a typical buy-to-let mortgage and talk about how to find the best buy-to-let mortgage deals in this more difficult market.
What’s Changed: The Rules Have Gotten Stricter
These days, local and national governments are putting more rules on things like short-term rentals, multiple tenants and licensing. A lot of councils now require an HMO licence, which means they have to follow stricter fire safety rules and keep a closer eye on the landlord’s records.
The government is also thinking about rent control and stricter rules for the private rental market.
Changes in the mortgage market make it riskier for lenders to give out loans. When hmo mortgage lenders review a new finance application, they think about things such as compliance risks, income volatility, void periods and tenant defaults. These risks may be even higher under the new rules. This means more paperwork, longer wait times for approvals and sometimes higher hmo mortgage rates.
Problems with HMO Mortgages
1. Stricter rules for lending and higher deposits
Because of this, many lenders think that HMOs are riskier types of rental property, so they ask for much larger deposits than standard buy-to-let mortgages. The reasonable range for these bigger deposits is between 25% and 30%. This could be a big problem for people in the UK who want to secure an HMO specialist mortgage, especially if they are first-time landlords.
2. Stress Testing Income and Affordability
HMO mortgage lenders usually run through a range of stress test rates (around 5% or even 5.5%) while applying rental income to see if repayments will hold. This is so they know what the worst-case scenarios are. HMO mortgage rates have been going up in recent years, and so have local regulations (rent caps, licence fees) and people are questioning your revenue projections. The more they speculate, the more closely their income is looked at, like with short-term lets.
3. Rental Voids and Unstable Income
There may be empty rooms or spaces between tenancies in an HMO with more than one tenant. Seasonal changes may make demand for serviced accommodation even more unstable. To get a serviced accommodation mortgage you need to show that you have strong occupancy projections and backup plans. Not just likely forecasts, but also realistic worst-case scenarios must be shown to lenders.
4. Higher Risk of Compliance and Licensing
If you don’t get the right HMO licenses or set up better safety standards on the property (fire doors, emergency lighting, alarms, gas/electrical inspections), you could be charged or even have to close. If the property doesn’t meet the HMO lender’s standards, they may stop considering or even withdraw an offer. This means that you will have to invest during the loan process or even before you buy the property, not after.
5. HMO Mortgage Lenders’ limited interest and higher margins
Not all lenders who give out buy-to-let mortgages or serviced accommodation loans will give money for HMOs. When people lend money for HMOs, they sometimes charge higher interest rates to cover their risk. However, the interest rate on an HMO mortgage in the UK or a serviced accommodation mortgage would be much higher than the interest rate on a regular buy-to-let mortgage. That extra cost lowers the yield and raises the break-even point.
HMO / Serviced Accommodation vs Standard Buy-to-Let
Most buy-to-let mortgages are easier to secure than mortgages for either an HMO or Serviced Accommodation property. Standard buy-to-let products tend to have lower interest rates, lower deposit requirements and a more consistent underwriting structure because lenders are more comfortable with single or dual tenancies, steady income streams, and less complicated operations.
However, HMOs and Serviced Accommodation properties can have higher rental yields than regular buy-to-let flats and houses, but they are a little more complicated to manage, which keeps people interested. In the end, it’s all about risk-based pricing: if you get a mortgage for an HMO or serviced accommodation, you’ll be buying the upside with stricter terms.
With the best buy-to-let mortgage deals UK, many landlords feel safer and more at ease with a standard buy-to-let mortgage deal than with a higher-density letting deal, especially when there is a lot of uncertainty about the rules.
Final Thoughts
Getting a UK HMO mortgage or serviced accommodation mortgage is clearly more complex and nerve-wracking than it used to be. A landlord should be ready for anything because of stricter rules, a greater sense of risk, and more careful liabilities. On the other hand, the best buy-to-let mortgage deals in the UK usually have more flexible, competitive terms and are often cheaper than HMO options when it comes to compliance risk, cost, or even interest margins.
So, if you are well prepared with compliance, accurate forecasts, and a good portfolio approach, you can still make good money from a serviced let or an HMO. The key is to treat the process like a full business plan instead of just another property deal and look for lenders who really understand and support the HMO / serviced accommodation niche.
Ready to Secure the Right HMO Mortgage in the UK?
Our experienced mortgage advisors can help you navigate complex HMO lending requirements and find competitive deals tailored to your portfolio needs. Contact us today to discuss your needs and explore the best options available across ALL HMO mortgage lenders and serviced accommodation finance providers.