HMO Block Mortgages London

Underwriting a London HMO commercial mortgage

An HMO of five rooms or more is a commercial mortgage, not a buy-to-let. The underwrite is built from the bottom up: room count, rent per room, whether the let is all-inclusive of bills, historical occupancy, and the aggregate rent tested against stressed interest at an ICR of 140 to 160%. The loan is then capped at the lower of the LTV limit and the figure the cover test supports, and on London HMOs it is almost always the cover test that binds rather than the LTV. Seventy-five per cent is achievable on a well-let block with an established letting history and a clean licence, but only where the rent roll actually carries it.

The single most important thing to understand before buying is Article 4. Nationally, converting a single dwelling (Class C3) into a small HMO for up to six people (Class C4) is permitted development and needs no planning application. An Article 4 direction removes that right, and the great majority of London boroughs now have one covering all or part of their area. Inside an Article 4 area every conversion needs a full planning application, decided against local policy that in many boroughs is explicitly written to resist further HMO concentration. That is not a technicality: it is the difference between a conversion project you can underwrite and one you cannot. We check the Article 4 position and the borough's HMO policy before we take a conversion case to a lender, because a bridge with no realistic planning route is a bridge with no exit.

The second planning threshold catches people out just as often. Class C4 only covers HMOs of up to six occupants. Above six the property becomes sui generis and needs full planning permission everywhere in England, Article 4 or not. The borough registers show exactly how live this is. In Lambeth, application 26/01984/FUL sought change of use from a C3 dwellinghouse to a nine-person sui generis HMO at 23 Pearman Street SE1 7RB, and 26/01890/FUL sought the same at 94 Greyhound Lane SW16 5RW. In Ealing, application 262458FUL proposed a nine-bedroom, thirteen-person sui generis HMO at 30 Bournemead Close, Northolt UB5 6PT, and 262543FUL a seven-person HMO at 12 Wellgarth, Greenford UB6 0RR. In Kingston upon Thames, application 26/01119/CPU covered a change from a six-person to a seven-person HMO at 29A Coombe Road KT2 7AY, which is the exact point at which a C4 property crosses into sui generis. Adding a seventh room is a planning event, not a refurbishment decision, and lenders read the consent before they read the rent schedule.

Licensing runs alongside planning as a separate regime. Any HMO occupied by five or more people forming two or more households requires a mandatory licence from the borough. On top of that, many London boroughs operate additional licensing schemes covering smaller HMOs and selective licensing covering ordinary rented housing, and the schemes differ by borough, run for fixed periods and get renewed on their own timetable. For a lender, an unlicensed HMO that should be licensed is a serious problem: it exposes the landlord to rent repayment orders and financial penalties, and it makes the income stream legally fragile. Where a licence application is in progress we can usually work with that, but where a property has been operating unlicensed, expect the lender to require the licence before drawdown rather than after.

Retrospective and lawful-development applications are a persistent feature of the London market and a genuine underwriting flag. Enfield application 26/02838/FUL at 150 Princes Avenue N13 6HD was submitted part-retrospectively for a C3 to C4 change of use, and 26/02817/FUL at 24 Queens Road N9 0RB was fully retrospective. In Haringey, HGY/2026/1641 sought a certificate of lawful development confirming existing use of 28 Willingdon Road, Wood Green N22 6SB as a large sui generis HMO for up to twelve residents in eight households. If you are buying a property whose HMO use has never been formally authorised, that is a title and planning risk the lender will price, and in some cases decline. Establish the planning history before you exchange, not during legals.

Illustrative sizing. A six-room professional HMO in an outer London borough at £700,000 with an established all-inclusive rent roll, a current mandatory licence and clean C4 planning status sizes to roughly 70 to 75% LTV at an ICR of 145% and prices in the lower half of the band with InterBay Commercial, Paragon or Aldermore. The same property with the seventh room added and no sui generis consent in place is not a term deal at all until the planning position is regularised. A conversion inside an Article 4 area routes through a bridge at 8.5 to 11.0% pa covering purchase and works, and we will only place it where there is a credible planning route, because otherwise the exit does not exist.

Finance structures for London HMO blocks

A term HMO commercial mortgage is the route for a licensed, let, correctly consented property. Conversions route through a bridge, but only where the planning position supports a real exit, which inside an Article 4 area means a credible full application rather than an assumption. Multiple properties consolidate through portfolio refinance.

Lender appetite for London HMOs

Appetite is deep, but it is concentrated in the specialist pool rather than on the high street. InterBay Commercial, LendInvest, Together, Paragon, Aldermore, Cambridge and Counties and Shawbrook all write London HMO business, at 6.5 to 8.5% pa at 70 to 75% LTV on licensed, correctly consented stock. They differ on the details that decide a case: the minimum room count each will consider, whether they accept sui generis properties at all, their stance on student versus professional lets, whether they will lend where an additional licensing scheme is mid-renewal, and how they treat all-inclusive rents where the landlord absorbs utilities and council tax. LendInvest, Paragon and Together are the most established on multi-property portfolios consolidating on aggregated DSCR. NatWest, Lloyds, Barclays and Santander generally decline HMOs above five rooms as a class, so a borrower who starts with their own bank usually loses several weeks before arriving at the specialist pool anyway. The main reason a London HMO case fails is not pricing. It is planning: a property operating above six occupants without sui generis consent, or a conversion assumed to be permitted development inside an Article 4 area.