Is it easier to get an HMO mortgage as a limited company?

Securing a mortgage for a House in Multiple Occupation (HMO) is inherently more complex than a standard Buy-to-Let (BTL) due to increased regulation and risk. While getting an HMO mortgage through a limited company (Ltd Co) does not necessarily mean the application process is fundamentally “easier” in terms of documentation or speed, this structure often provides significant advantages that make properties more easily affordable in the eyes of the lender. This access to more favourable Interest Cover Ratio (ICR) assessments, coupled with potential tax efficiencies, makes the limited company route the preferred—and often only viable—option for many professional UK property investors seeking HMO finance.

Exploring Whether Is It Easier to Get an HMO Mortgage as a Limited Company? Criteria and Considerations for UK Investors

Understanding HMO and Limited Company Mortgages

An HMO is a property rented out by at least three people who are not from one ‘household’ (e.g., a family) but share facilities like a bathroom or kitchen. Because HMOs often involve higher turnover, greater wear and tear, and mandatory licensing requirements, lenders view them as higher risk than standard single-occupancy BTLs. Consequently, specialist HMO mortgages are required.

When applying for an HMO mortgage via a limited company (often an SPV or Special Purpose Vehicle), the company becomes the legal borrower, not the individual. This approach is highly popular among portfolio landlords primarily due to changes in how mortgage interest relief is calculated for individual taxpayers (known as Section 24 relief restriction).

Affordability Assessment: The Key Difference

The primary factor determining whether a lender approves a mortgage is the Interest Cover Ratio (ICR). The ICR measures whether the rental income generated by the property adequately covers the mortgage interest payments, often factoring in a stress-tested interest rate (e.g., 5.5% or 6.0%).

How Limited Companies Influence the ICR

For individuals, lenders must account for the full marginal rate of income tax (up to 45%) when calculating the ICR because private landlords can no longer deduct all mortgage interest costs before calculating tax. This often leads lenders to require a higher ICR, sometimes 145% or 160%.

• Individual Owners: Stressed ICR rates are typically higher (e.g., 145% or 160%), making it harder for the property’s rent to satisfy the lender’s required coverage.
• Limited Companies: The company pays Corporation Tax (currently 19%-25%). Because the company can still deduct finance costs, lenders often apply a lower, more favourable ICR, typically around 125% or 130%.

Because the HMO property’s income is typically sufficient to pass the lower limited company ICR requirement, the property is deemed more affordable, which often translates to easier access to the required financing. This doesn’t mean the process is less bureaucratic, but it significantly improves the financial viability of the investment in the lender’s eyes.

Lender Criteria and Product Availability

When asking is it easier to get an hmo mortgage as a limited company, it is also important to consider the breadth of available products. Most specialist HMO lenders focus their attention on the limited company market.

Wider Access to Specialist Products

Many high street lenders avoid complex HMOs altogether, regardless of whether the application is personal or corporate. However, specialist lenders and challenger banks are often dedicated to the limited company BTL sector. This means:

• More Options: Limited companies often have access to a broader range of specialist products tailored for complex properties like HMOs, multi-unit blocks, and large portfolios.
• Portfolio Lending: If you plan to build a large portfolio of properties, lenders generally prefer to deal with a corporate structure, simplifying ongoing management and risk assessment.

Director and Company Requirements

While the company is the borrower, the lender will still perform extensive due diligence on the directors and the company itself. This includes:

• Credit Checks: All directors and major shareholders will undergo personal credit checks. 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)
• Personal Guarantee (PG): Nearly all Ltd Co mortgages require directors to provide a PG, meaning they are personally responsible for repaying the debt if the company cannot. This is a critical risk factor.
• Experience: Lenders often require proof that directors have existing experience as landlords, especially for HMOs, which are high-management properties.

The Risks and Complexity of Limited Company HMOs

While the Ltd Co structure offers financial benefits, it introduces inherent complexity and costs that must be managed.

Setup and Administrative Costs

• Formation Fees: Setting up the SPV and structuring the shareholding correctly involves legal and accounting fees.
• Higher Interest Rates: Ltd Co mortgages typically carry slightly higher interest rates and arrangement fees than comparable personal BTL products, though the tax savings usually offset this.
• Ongoing Compliance: The company must comply with Companies House requirements, file annual accounts, and manage Corporation Tax, requiring professional accountancy services.

The Personal Guarantee Risk

The requirement for a Personal Guarantee means that the primary advantage of a limited company (protecting personal assets) is partially negated when borrowing funds. If the HMO fails to generate income or the company defaults on repayments, the lender can pursue the director’s personal assets (including their primary residence) to recover the debt.

Crucially, 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. It is essential to ensure the business plan for the HMO is robust and sustainable.

HMO Licensing and Regulatory Requirements

Obtaining an HMO mortgage, regardless of the borrowing structure, requires strict adherence to local council and national housing regulations. Lenders will verify that the property meets all necessary standards.

Mandatory licensing is usually required if the property is rented to five or more people forming more than one household. Smaller HMOs may require licensing under specific local council schemes. Lenders require proof that all necessary licences and planning permissions are in place, which adds an administrative step but is non-negotiable for HMO compliance.

You can find comprehensive guidance on licensing and regulatory standards via the UK Government’s housing resources. Learn more about mandatory HMO licensing requirements in the UK.

People also asked

Can a first-time landlord get an HMO mortgage through a limited company?

It is significantly more difficult, but not impossible. Many specialist lenders prefer at least 12–24 months of existing landlord experience because HMO management is complex. If you are a first-time landlord, you may need a larger deposit (25% or more) and demonstrate significant professional or related management experience.

What deposit is required for a limited company HMO mortgage?

Typical loan-to-value (LTV) limits for HMO mortgages are lower than standard BTLs. You will usually need a minimum deposit of 25%, meaning an LTV of 75%. For highly complex or large HMOs (6+ rooms), deposits of 30% or 35% may be required.

Do I need an accountant to set up a property limited company?

While you can form the company yourself, engaging a specialist accountant is strongly advised. They ensure the company structure (e.g., creating an SPV with the correct SIC codes) is compliant for mortgage purposes and advise on ongoing Corporation Tax and dividend strategies.

Does the limited company have to be an SPV?

Most HMO lenders require the limited company to be a Special Purpose Vehicle (SPV), meaning its sole purpose, as defined by its SIC code at Companies House, is buying and renting property. Lenders rarely consider trading companies (those with non-property income) for BTL or HMO mortgages.

How long does the HMO mortgage application process take for a limited company?

The process is generally longer than a standard residential mortgage. Due to the complexities of the commercial valuation, licensing checks, and verifying company accounts/director suitability, a limited company HMO application typically takes between 6 to 12 weeks, depending on the speed of the legal and valuation processes.

Conclusion on Ease and Viability

Ultimately, the question “is it easier to get an HMO mortgage as a limited company” should be reframed as: “Is it more viable to get an HMO mortgage as a limited company?”

For the professional landlord, the corporate structure offers superior financial viability because the property is more likely to pass the lender’s affordability criteria (ICR). While the administration and setup are more onerous than a personal application, the financial benefits and the broader choice of specialist lenders available make the limited company route the standard and often necessary path for successful HMO investment in the UK market.