Guide
HMO licensing, and what it does to your mortgage
Updated
Licensing is the first question a lender asks about an HMO and the one most likely to stop a case before pricing is discussed. It is also entirely knowable in advance, which makes it the cheapest thing to get right.
When a licence is mandatory
Under gov.uk guidance, a mandatory licence applies where a property is rented to 5 or more people who form more than 1 household, some or all of them share a toilet, bathroom or kitchen, and at least 1 tenant pays rent. All three limbs have to be met.
A licence lasts a maximum of 5 years and must be renewed before it runs out. Renting out an unlicensed HMO can attract an unlimited fine, which is why a lender treats licensing as a condition rather than as paperwork.
The threshold is a floor, not the whole test
Smaller properties may still need a licence depending on the area, and the guidance is explicit that you should confirm with your local council. Additional and selective licensing schemes vary between councils and change.
So the answer to whether your property needs a licence is a phone call to one specific council rather than a rule you can look up nationally. Make that call before you make an application.
Conditions attached to the licence
A council may add conditions, for example improving the standard of facilities, and a disagreement can be appealed to the First-Tier Tribunal.
Those conditions can require work, and work costs money and time between offer and drawdown. Ask the lender whether the licence conditions have to be satisfied before drawdown or can follow it, because that answer decides your cash flow.
How lenders handle a pending licence
Some will lend with the application submitted; others want the licence granted. It is a straightforward question and the answer varies enough to be worth asking first.
If you are buying an operating HMO, establish whether the existing licence transfers or whether you must apply afresh. That is a common gap between exchange and completion.