The order matters too. Both should be settled before you offer on the property, not after the valuer has been instructed. A lender will ask, and by then the answer is fixed.
What counts as an HMO
Under gov.uk's definition, a property is an HMO when it is let to at least three people who are not from one household and who share facilities such as the kitchen or bathroom. A family is one household. Three friends sharing a house are three.
That definition decides whether the licensing rules apply at all. It is a lower bar than most people expect: a three-bedroom house let to three unrelated sharers is already an HMO.
Licensing: mandatory, and then whatever your council adds
A licence is mandatory when all of these apply:
- five or more people live there, forming more than one household
- they share toilet, bathroom or kitchen facilities
- at least one of them pays rent
That is the national floor. Many councils go further with additional licensing, which catches smaller HMOs in the areas they designate. The only reliable answer is the council's own scheme for the street the property is on.
A licence lasts a maximum of five years, and its conditions matter as much as the licence itself. Room sizes, fire safety and facilities are set per property, and they can cap the number of rooms you are allowed to let, which caps the income the loan is sized on.
The penalties changed on 1 May 2026. Letting an HMO that should be licensed can still be prosecuted, but councils can now impose a civil penalty instead, of up to £40,000, and a tenant can apply for a rent repayment order of up to two years' rent. A lender reads that as exposure sitting against its security.
Planning: C3, C4 and the Class L right
Planning looks at the use, not the tenancy. An ordinary house is use class C3. A small HMO, shared by up to six residents, is use class C4.
Class L of the General Permitted Development Order lets a property change between C3 and C4 in either direction without a planning application. That right is what makes most small HMO conversions straightforward. It does not allow a building to be split into two or more separate dwellings, which needs planning in the usual way.
Above six residents the use falls outside C4, so Class L does not cover it. An HMO for seven or more residents needs planning permission whatever the area.
Article 4: when the right is switched off
An Article 4 direction withdraws permitted development rights across a defined area. It is made by the local planning authority or the Secretary of State. It does not ban HMOs. It means the change from C3 to C4 needs a planning application where it otherwise would not.
An immediate direction takes effect straight away, and the council must confirm it within six months of it coming into effect for it to stay in force. So an area can move under Article 4 between the day you find a property and the day you complete. Check the council's current directions before you offer, not the ones listed when the agent's particulars were written.
Buying an existing HMO
This is where most of the lender's questions land, because two things do not come with the property.
The licence does not transfer. Section 68(6) of the Housing Act 2004 is one line: a licence may not be transferred to another person. On a purchase you apply for your own. A properly made application is a defence to the offence of operating without a licence while the council decides it, so the practical position is a licence in your name or evidence that you have applied. What a lender will not accept is an HMO in a licensing area with neither.
The use has to be lawful, not just established. A house that has been let to sharers for years may never have had permission to be, particularly if an Article 4 direction came in first. The evidence a lender and its solicitor look for is the planning history or a certificate of lawful use from the council. A property operating as an HMO without the planning to do so is a problem the buyer inherits.
What a lender actually checks
We work through the same list a credit team does, before an offer rather than after a valuation:
- Licence status. Whether one is required under the council's scheme, whether it is held or applied for in your name, and what its conditions allow.
- Planning position. C3, C4 or larger, whether an Article 4 direction applies, and the evidence that the current use is lawful.
- Room count. Up to six rooms is a broad market. Above that the lender list shortens sharply and pricing moves.
- The rent the lender will count. Lenders differ on how they treat rents that include bills, and on the cover ratio they test the rent against. The same house can borrow materially different amounts at different lenders, which is the case for placing it rather than applying to the first name you know.
- Both valuations. A valuer will usually give a bricks and mortar value as an ordinary house and an investment value based on the income. Which one a lender uses varies by lender and by size: smaller HMOs are commonly valued as ordinary houses, and some lenders lend against the lower of the two.
Get the first two wrong and the last three stop mattering. That is why they come first.
If you have a property in mind, the HMO mortgages page sets out how we place these cases, and the rental cover calculator shows the rent a property has to clear at whatever cover test your lender applies.
Sources
- gov.uk, House in multiple occupation licence: the HMO definition, mandatory licensing criteria and licence term.
- legislation.gov.uk, Housing Act 2004, section 68: a licence may not be transferred.
- legislation.gov.uk, Housing Act 2004, section 72: the offence, and the defence where a licence application has been duly made.
- gov.uk, Civil penalties under the Renters' Rights Act 2025: penalties up to £40,000, in force 1 May 2026.
- gov.uk, Rent repayment orders: guidance for tenants: unlicensed HMOs, up to two years' rent.
- legislation.gov.uk, Use Classes Order 1987, Schedule: Class C4, up to six residents.
- legislation.gov.uk, GPDO 2015, Schedule 2, Part 3, Class L: change between C3 and C4.
- legislation.gov.uk, GPDO 2015, Schedule 3, paragraph 2(6): an immediate Article 4 direction expires after 6 months unless the council confirms it.
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