Can I get an HMO mortgage with no deposit?

Seeking an HMO (House in Multiple Occupation) mortgage typically requires significant capital, and finding 100% financing—meaning an HMO mortgage with no deposit—is exceptionally difficult in the UK lending market. Specialist buy-to-let lenders generally require a minimum deposit of 25%, with many requiring 30% or more, especially given the increased complexity and perceived risk associated with HMO properties.

Can I get an HMO Mortgage with No Deposit in the UK?

The straightforward answer to whether you can secure an HMO mortgage with no deposit is generally no. HMO properties, defined as those rented out by at least three tenants who form more than one household and share kitchen or bathroom facilities, are considered specialist investments.

Lenders adopt a cautious approach to specialist finance. When assessing an HMO mortgage application, they look for substantial security and borrower commitment, which is typically demonstrated by a large deposit. This reduces the lender’s exposure if the property market dips or if the property fails to generate sufficient rental income to cover costs.

Understanding Typical HMO Deposit Requirements

Standard residential mortgages can sometimes be secured with small deposits (5% or 10%), but this is not the case for investment property, particularly HMOs. The loan-to-value (LTV) ratio for HMO mortgages is significantly lower.

A typical deposit requirement for a specialist HMO mortgage often falls within these ranges:

• Minimum Standard Deposit: 25% LTV (Loan-to-Value, meaning you borrow 75%).
• Common Requirement: 30% LTV.
• For complex properties or new landlords: 35% to 40% LTV may be required.

These higher deposit requirements reflect the perceived risk of the investment. HMO management can be more intensive, void periods can be more frequent, and the property valuation process is often more complicated than for a standard single-family buy-to-let.

Why Lenders Demand Higher Deposits for HMOs

Lenders assess risk primarily based on the likelihood of default and the potential loss incurred if they need to repossess and sell the property. Several factors drive up the perceived risk of an HMO compared to a standard buy-to-let:

1. Liquidity Risk

HMOs appeal to a narrower buyer market than standard residential homes or traditional BTL properties. If the lender needs to repossess the property, it may take longer to sell, impacting liquidity. A large deposit acts as a buffer against potential valuation drops during this period.

2. Regulatory and Licensing Complexity

Most large HMOs require mandatory licensing from the local authority (though rules vary across the UK). Compliance with safety standards, fire regulations, and council rules is complex. Lenders need assurance that the landlord understands and adheres to these requirements. A large investment shows commitment to managing the property professionally.

The UK Government provides detailed guidance on HMO licensing requirements and standards, which all potential investors should study carefully.

3. Management Intensity

HMOs generally involve higher tenant turnover and more intensive maintenance and management requirements. Lenders prefer experienced landlords, and if you are new to the HMO sector, a higher deposit might be required to mitigate this experience deficit.

Alternative Routes to Achieve 100% Funding (Leveraging Equity)

While you cannot typically secure an HMO mortgage with zero deposit using the purchased property as the sole collateral, it is possible to achieve 100% funding for the HMO purchase price by leveraging equity in other assets. This means the overall financing for the project is 100% of the purchase price, but the deposit capital is secured elsewhere.

1. Remortgaging Existing Property

If you own other residential or investment properties (either outright or with significant equity), you could remortgage those properties to release the necessary deposit funds for the HMO. This strategy essentially uses the equity in one property as the deposit for the next. This requires careful financial planning to ensure the overall debt serviceability remains manageable.

2. Bridging Finance and 100% LTV (Cross-Collateralisation)

In certain scenarios, specialist bridging lenders might offer a short-term facility that covers 100% of the purchase price of the new HMO property, provided you offer security against another unencumbered property you own.

This method, known as cross-collateralisation, allows the lender to secure the loan against two or more properties, effectively reducing their risk exposure without demanding cash upfront. However, bridging finance is high-risk.

Understanding Bridging Finance

Bridging loans are designed for short-term use (typically 1 to 18 months) to ‘bridge’ a gap until long-term finance (the HMO mortgage) is secured or another asset is sold. They are faster to arrange than traditional mortgages but come with higher interest rates and fees.

• Interest Roll-Up: Unlike typical monthly mortgage payments, most bridging loans roll up the interest. This means the interest accrues over the loan term and is paid back in a single lump sum when the loan is repaid (the exit strategy).

Crucial Risk Warning for Bridging Loans: If you use bridging finance, especially by cross-collateralising assets, you must ensure your exit strategy is robust. Bridging finance is secured lending, and Your property may be at risk if repayments are not made. Consequences of default can include legal action, repossession, increased interest rates, and additional charges which significantly increase the total debt burden.

Eligibility and Preparation for an HMO Mortgage

Even if you secure the deposit funds, lenders will scrutinise several factors before approving an HMO mortgage. Preparing this information in advance is crucial:

1. Landlord Experience and Status

Experienced landlords with a portfolio of properties typically receive better terms than first-time BTL investors. If you are new to HMOs, you will need a detailed business plan demonstrating your understanding of tenant management and regulatory compliance.

2. Credit Profile

Lenders will perform stringent checks on your personal and financial history. A strong credit history is vital to securing competitive rates and favourable LTV ratios. Ensure all your financial records are accurate and up to date. You can check your financial standing before applying. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

3. Property and Rental Viability

The lender will assess the Gross Rental Yield (GRY) and ensure the projected rental income is sufficient to cover the mortgage repayments by a significant margin (often 125% to 145% of the interest payable). They will also require evidence that the property meets all local HMO requirements.

People also asked

What is the maximum LTV for an HMO mortgage?

The maximum LTV for an HMO mortgage typically sits around 75%. While some niche lenders might offer 80% LTV in very specific, low-risk circumstances or for highly experienced landlords, securing more than 75% LTV is unusual and requires premium rates.

Is an HMO mortgage riskier than a standard BTL mortgage?

Yes, from a lender’s perspective, an HMO mortgage is generally considered higher risk than a standard Buy-to-Let (BTL) mortgage due to increased regulatory complexity, higher tenant turnover rates, and the specialised nature of the property, which can affect resale liquidity.

Can I use equity from my residential home for an HMO deposit?

Yes, releasing equity from your primary residence through a residential remortgage or further advance is a common and often cost-effective way to raise deposit funds for an HMO purchase. However, it is essential to remember that securing investment property debt against your primary residence increases your overall financial exposure.

What is the minimum number of tenants needed for an HMO classification?

In England and Wales, a property is typically classified as an HMO if it houses at least three tenants forming more than one household and they share essential facilities like a kitchen or bathroom. Large HMOs (five or more tenants) usually require mandatory licensing across the UK.

Do I need a special licence for an HMO?

Many HMOs require a licence from the local council, which ensures the property meets specific safety and amenity standards. Mandatory licensing applies nationwide to large HMOs (five or more tenants), but many local authorities also operate additional or selective licensing schemes for smaller HMOs.

Conclusion on Zero Deposit HMO Lending

While the aspiration to secure an HMO property without an upfront deposit is understandable, the reality of UK specialist property lending dictates that a substantial deposit is mandatory for securing the mortgage itself.

If you lack cash savings for the deposit, your focus should shift towards creative methods of capital raising, such as leveraging existing property equity or utilising high-risk, short-term bridging finance, rather than seeking a traditional zero-deposit product.

Consulting with a specialist broker who understands the nuances of HMO lending can provide clarity on the best routes available to you based on your specific financial portfolio and experience level.