The UK's Houses in Multiple Occupation (HMO) market is undergoing a notable shift, with growing tenant demand extending beyond traditional city hotspots into smaller towns, suburban locations and coastal communities.
Fresh research from
CHL Mortgages and
Chetwood Bank, indicates that the geography of HMO investment is evolving. The report highlights a significant rise in HMO licence applications across England, increasing from
41,162 in 2018 to 57,725 in 2024, while demand for shared accommodation is also spreading into locations that historically attracted far less investor attention.
Alongside this, data from
SpareRoom shows average UK room rents have climbed to
£747 per month, representing an increase of approximately
30% since the first quarter of 2020. Areas including
Sandwell, West Lancashire and Guildford have experienced particularly strong growth in licensing activity, while coastal and market towns are seeing increasing demand from tenants seeking more affordable housing outside major cities.
The trend reflects wider changes in employment patterns, housing affordability and tenant behaviour, but for investors considering entering the HMO market, securing finance remains considerably more complex than simply demonstrating attractive rental yields.
The HMO Market Is Becoming More Geographically Diverse
For many years, HMO investment has been closely associated with university cities, major employment centres and densely populated urban areas.
Cities such as Manchester, Birmingham, Leeds, Nottingham and Bristol have traditionally dominated investor attention due to their large student populations and concentrations of young professionals.
That landscape is beginning to change.
Hybrid working, changing migration patterns, continued affordability pressures and improved transport links are encouraging more people to live outside major metropolitan areas while still requiring flexible rented accommodation.
Many regional towns now offer employment opportunities, lower living costs and growing demand for professionally managed shared housing.
As a result, investors are increasingly identifying opportunities in locations that previously received relatively little attention from specialist landlords.
Rising Demand Does Not Guarantee Finance
Strong rental demand naturally attracts investor interest.
However, specialist HMO finance involves far more detailed underwriting than standard buy-to-let lending.
Unlike conventional rental properties, HMOs are assessed not only on rental income but also on how the property functions as a multi-occupancy investment.
Lenders carefully evaluate licensing requirements, local authority policies, Article 4 planning restrictions, fire safety compliance, property layout, room sizes, communal facilities and management arrangements.
The sustainability of tenant demand within the local market also forms an important part of many lending decisions.
A high projected yield alone is unlikely to satisfy underwriting requirements if there is insufficient evidence that demand will remain consistent over the longer term.
Location Quality Matters More Than Ever
The latest market data demonstrates that successful HMO investments increasingly depend on selecting the right location rather than simply targeting the highest headline returns.
Growing towns with expanding employment bases, universities, hospitals or strong transport infrastructure often provide more resilient long-term demand than locations where rental performance relies on a single tenant demographic.
Lenders increasingly consider local vacancy rates, competing rental stock, demographic trends and economic resilience when assessing specialist HMO applications.
Markets experiencing sustained population growth and diversified employment opportunities generally provide stronger lending propositions than areas where demand may fluctuate significantly.
This makes local market research an increasingly important part of the investment process.
Professional Landlords Continue to Hold an Advantage
As underwriting becomes more sophisticated, borrower experience remains an important consideration.
Experienced landlords with established HMO portfolios often benefit from demonstrating successful management histories, regulatory compliance and an understanding of licensing obligations.
New entrants can still obtain finance, but lenders may scrutinise applications more closely where applicants have limited experience managing multi-occupancy properties.
Many investors therefore choose to work alongside specialist managing agents or experienced professional advisers when expanding into the HMO sector.
Demonstrating a clear operational strategy can strengthen both lending applications and long-term investment performance.
Regulation Remains a Central Consideration
The continued growth of the HMO market has been accompanied by increasing regulatory oversight.
Licensing requirements have expanded across many local authorities, while Article 4 Directions restricting permitted development rights continue to influence where new HMOs can be established.
Building regulations, fire safety requirements, minimum room sizes and property standards have also become increasingly important.
For lenders, regulatory compliance is no longer viewed as an administrative detail.
It forms part of the overall credit assessment because non-compliant properties may present higher operational and exit risks.
Investors who understand local planning policy and licensing requirements before purchasing are generally better positioned to secure finance and complete projects successfully.
Demand Growth Creates Opportunity, Preparation Determines Success
The latest market analysis reinforces that HMO investment opportunities are no longer confined to Britain's largest cities.
Growing demand across regional towns, suburban locations and coastal communities is creating a wider geographical landscape for investors seeking strong rental performance.
At the same time, specialist lenders continue to adopt increasingly detailed underwriting standards.
Successful applications depend on demonstrating not only attractive rental projections but also sound management experience, appropriate licensing, sustainable tenant demand and a credible long-term investment strategy.
As the HMO sector continues to mature, the strongest opportunities are likely to emerge where thorough research, careful property selection and specialist finance advice come together to support sustainable long-term investment rather than simply chasing headline yields.
Frequently Asked Questions
Are HMOs still a good investment in the UK?
HMOs can remain attractive where there is sustained demand for affordable shared accommodation, strong local employment and limited competing supply. However, investors need to assess licensing, planning restrictions, operating costs and management requirements rather than relying on headline rental yield alone.
Which UK locations are seeing the strongest growth in HMO demand?
Demand is increasingly spreading beyond major cities into regional towns, suburban areas, market towns and coastal communities. Locations with hospitals, universities, growing employment, good transport links and constrained housing affordability may offer particularly resilient demand.
Can I get an HMO mortgage in a small town or coastal location?
Potentially, yes. Specialist lenders will consider HMOs outside traditional city centres, but they will want evidence of sustainable local tenant demand, realistic rental values and a viable exit strategy. Limited comparable evidence or weak demand may restrict lender appetite.
What do lenders look for when assessing an HMO mortgage?
Lenders typically examine the property layout, number of lettable rooms, licence status, planning position, fire safety compliance, room sizes, local rental demand, borrower experience and management arrangements. They also assess whether the projected rental income can support the proposed borrowing.
Do I need an HMO licence before applying for finance?
Not always, but lenders will need clarity on whether a licence is required and how it will be obtained. Where the property already operates as an HMO, lenders may expect the correct licence to be in place before completion or require satisfactory evidence that the application process is underway.
How do Article 4 Directions affect HMO investment?
An Article 4 Direction can remove permitted development rights, meaning planning permission may be required before converting a standard residential property into an HMO. Investors should check the local authority’s planning policy before purchase, as restrictions can affect both financeability and long-term value.
Can first-time landlords obtain HMO finance?
Yes, although lender choice may be more limited. Some lenders prefer applicants with previous landlord or HMO experience, while others may consider first-time investors with a strong professional team, suitable property, conservative leverage and credible management arrangements.
How is HMO rental income assessed by lenders?
Some lenders assess the property using its total room-by-room rental income, while others may apply a more conservative valuation or rental methodology. The approach depends on the property, location, planning status, number of rooms and whether there is an established market for comparable HMOs.
Are HMO mortgages more expensive than standard buy-to-let mortgages?
They can be. HMO lending usually involves more specialist underwriting, which may result in higher interest rates, larger arrangement fees or stricter deposit requirements. The total cost should be considered alongside the potentially higher rental income and operating complexity.
How can Willow Private Finance help with HMO finance?
Willow Private Finance can assess the property, local market, licensing position, projected rental income and borrower profile before approaching suitable specialist lenders. We help investors structure HMO purchases, refinances and refurbishment projects around both lender requirements and long-term investment objectives.
Considering an HMO Investment?
Whether you are purchasing your first HMO, refinancing an established portfolio or exploring opportunities in an emerging regional market, Willow Private Finance can help you identify lenders that understand specialist multi-occupancy property. Speak to our team to discuss the property, licensing position, rental strategy and funding required.
