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HMO Yield Calculator

Q: What is an HMO and when do I need a licence?

An HMO is a property let to 3 or more unrelated occupants who share facilities. A mandatory HMO licence is required nationwide for any property let to 5 or more unrelated occupants. Operating without a required licence carries fines up to £30,000 per offence.

Q: Why are HMO net yields lower than the headline gross yield suggests?

HMO gross yields of 12–18% look spectacular, but after all-bills-included costs, management fees of 10–15%, and licensing costs, net yields typically come out at 6–10%. The gap is much narrower than the gross yield comparison implies.

Q: What is a realistic per-room profit per month?

Strong HMO deals deliver £100+ per room per month after all costs and tax. £75–100/room is decent. Below £50/room, the operational complexity usually is not justified by the marginal extra return over BTL.

Q: Why are HMO mortgages more expensive than BTL?

HMO mortgages typically run 0.5–1% above standard BTL rates. Most lenders require a 25% minimum deposit, an HMO licence in place, and an ICR stress test at 145%. Always use a specialist HMO mortgage broker.

Per-room rental analysis for UK Houses in Multiple Occupation. All-bills-included costs, HMO licensing, ICR stress test, Section 24 modelling, and per-room profit metric. Built specifically for HMO landlords and property investors.

Per-Room Analysis All-Bills-Included HMO Licensing ICR Stress Test Section 24 Impact Cash-on-Cash ROI

HMO Property Details

1 · Property

Purchase Price

Depositmin 25% for HMO

Number of Lettable Rooms3-4 = small, 5+ = mandatory licence

2 · Rental Income (per-room basis)

Average Rent per Room£/week

Void Allowance per Roomweeks empty/year per room

3 · Mortgage

Mortgage RateHMO avg 5.5–7%

Mortgage Termyears

Interest-only mortgage

Most HMO mortgages are IO

4 · HMO-Specific Annual Costs

All Bills Includedcouncil tax + utilities + internet + TV

Cleaner (Communal Areas)£/year

Maintenance Reserve% of gross rent

Letting Agent FeeHMO mgmt 10–15%

Landlord InsuranceHMO insurance £/year

Garden Maintenance£/year

Fire / Gas / Electrical Certsannual safety checks

5 · Licensing & Setup

HMO Licence Costone-off, valid 5 years

Licence Termyears

Initial Setup Costfire doors, alarms, conversion

6 · Tax

Income Tax Band

Owned via limited company

19% corp tax — avoids Section 24

↓ Methodology ↓

How this calculator works — formulas & sources

Gross HMO Yield

Gross Yield = (Rooms × Monthly Rent × 12) ÷ Purchase Price × 100%
Effective Annual Rent = Monthly Rent × (52 − Void Weeks) ÷ 52 × 12

Void allowance is applied per room before the gross yield calculation. HMO gross yields of 12–18% are common but always compare net yield — the gap between gross and net is significantly wider for HMOs than standard BTL due to bills and management costs.

All-Bills-Included Costs

Annual Bills = Gas + Electric + Water + Internet + Council Tax
Per Room Bill Cost = Annual Bills ÷ Number of Rooms

When renting all-bills-included, the landlord absorbs all utility costs. These are deducted from gross income before calculating net yield. Bills costs typically run £1,500–3,000/year for a 4–5 room HMO depending on location and tenant usage.

Net HMO Yield

Net Yield = (Effective Annual Rent − All Running Costs) ÷ Purchase Price × 100%
Running Costs = Agent Fees + Maintenance + Insurance + Bills + Licensing + Other

HMO net yields typically fall to 6–10% after all costs — significantly below the gross yield headline. The operational complexity of an HMO is only justified when net yield meaningfully exceeds standard BTL net yield for the same area.

ICR Stress Test

ICR = Annual Rent ÷ Annual Mortgage Interest
Required: ≥125% (basic rate) · ≥145% (higher rate)
Stress Rate = max(Pay Rate + 2%, 5.5%)

HMO lenders apply the same PRA SS13/16 ICR stress test as standard BTL. Most specialist HMO lenders also require the ICR at 145% regardless of tax band, and demand the HMO licence is in place before completion.

Per-Room Profit

Monthly Profit Per Room = Annual Net Cashflow ÷ 12 ÷ Number of Rooms
Annual Net Cashflow = Net Annual Rent − Tax − Annual Mortgage Cost

Target: £100+/room/month after all costs and tax is considered strong. £75–100/room is decent. Below £50/room, the management burden of an HMO is rarely worth the marginal gain over a standard BTL.

Section 24 & Ltd Co

Individual: Tax Credit = Mortgage Interest × 20%
Ltd Co: Full mortgage interest deductible · Corp Tax = Profit × 19%

Section 24 applies to HMOs held in individual names exactly as with standard BTL. Given HMOs typically carry higher mortgage balances, the Section 24 impact is proportionally larger. Ltd Co exemption is therefore more compelling for HMO investors at higher tax bands.

Sources: Housing Act 2004 (HMO licensing) · The Licensing of Houses in Multiple Occupation (Mandatory Conditions) Regulations 2018 · PRA SS13/16 (ICR stress test) · Finance Act 2015 §24 (Section 24)

Last reviewed: April 2026

HMO Results

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Per-Room Profit per Month

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⬤ Calculating…

Yields & Returns

Gross Yield

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before expenses

Net Yield

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after running costs

Monthly Cashflow

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total, all rooms

Cash-on-Cash ROI

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return on cash invested

ICR Stress Test

ICR —

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Annual Breakdown

Download the Full Excel Version

Includes per-room scenario modelling, 5-year cashflow projection, Ltd Co vs personal comparison and full HMO analysis guide.

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How it works

Why HMO yields look bigger than they are

HMOs achieve gross yields of 12–18% — far above standard BTL. But the headline number hides higher costs. Here's what each metric tells you and where most HMO calculators get it wrong.

01 — PER-ROOM RENT

The HMO pricing model

HMOs are priced per room, per week — not per property, per month. A 6-room HMO at £130/week per room generates £39,000/year (assuming 2 weeks void per room). The same property as a single-let might rent for £18–20k/year. That's where the 2x yield advantage comes from.

02 — ALL BILLS INCLUDED

Tenants don't pay utilities

In HMOs the landlord pays council tax, gas, electric, water, internet, and TV licence — typically £5,500–7,500/year for a 5-room property. This single cost wipes out 15–20% of gross rent. Standard BTL calculators miss this entirely. Tenants paying their own bills is what makes BTL net yields competitive with HMO net yields.

03 — HMO LICENSING

Mandatory for 5+ rooms

All HMOs let to 5+ unrelated occupants need a mandatory licence (£500–1,500, valid 5 years). Smaller HMOs (3–4 rooms) may need a licence in "Additional Licensing" boroughs. Operating without a required licence is a criminal offence — fines up to £30,000 per offence plus Rent Repayment Orders. Always check with the local council before purchase.

04 — ARTICLE 4 DIRECTION

Planning permission required

Some boroughs (Nottingham, Birmingham, Manchester, Sheffield, parts of London) require planning permission to convert a normal house into an HMO. Article 4 Direction zones are local — check with the council before buying. Approval can take 8–13 weeks and may be refused entirely. Buying without checking can leave you with a property that legally cannot be used as HMO.

05 — ICR STRESS TEST

HMO mortgages need 145%

HMO mortgages typically require a 145% Interest Coverage Ratio for higher-rate taxpayers. With higher mortgage rates than BTL (5.5–7% vs 4.5–5.5%), this is harder to pass. Failing ICR means no mortgage — regardless of how much rent the rooms generate. Some specialist lenders accept 125% but at premium rates.

06 — PER-ROOM PROFIT

The metric experienced HMO investors use

Per-room profit per month is how seasoned HMO investors compare deals. Strong HMOs deliver £100+ per room per month after all costs and tax. Below £50/room/month, the operational complexity of running an HMO (tenant churn, communal area issues, all-bills management) usually isn't worth the marginal extra return over BTL.

FAQ

Common questions

What is an HMO and when do I need a licence?

An HMO (House in Multiple Occupation) is a property let to 3 or more unrelated occupants who share facilities (kitchen, bathroom, living areas). A mandatory HMO licence is required nationwide for any property let to 5 or more unrelated occupants. Smaller HMOs (3–4 occupants) may need a licence under Additional Licensing rules in certain boroughs — check with the local council. Operating without a required licence is a criminal offence with fines up to £30,000 per offence, plus Rent Repayment Orders that allow tenants to claim back up to 12 months of rent.

Why are HMO net yields lower than the headline gross yield suggests?

HMO gross yields of 12–18% look spectacular, but after the all-bills-included costs (council tax, gas, electric, water, internet, TV licence — typically £5,500–7,500/year), HMO management fees of 10–15% (vs 8–10% BTL), higher maintenance (HMOs deteriorate faster with multiple tenants), and licensing costs, net yields typically come out at 6–10%. Compared to BTL's 3–5% net yields, HMO is still better — but the gap is much narrower than the gross yield comparison implies.

How does Section 24 affect HMO landlords?

Section 24 applies to HMO landlords exactly the same way it applies to BTL landlords. If you own personally, mortgage interest is not deductible from rental income — instead you receive a 20% basic-rate tax credit. For higher-rate taxpayers (40%+) this means paying tax on income that went to the mortgage. Many HMO investors operate through a limited company to avoid Section 24, since HMOs typically carry larger mortgages than BTL and the tax saving from full interest deductibility can exceed the rate premium on Ltd Co mortgages.

What is Article 4 Direction and why does it matter?

Article 4 Direction is a planning rule used by some councils (Nottingham, Birmingham, Manchester, Sheffield, parts of London and others) that removes the automatic right to convert a single-family home into an HMO. In Article 4 zones, you must apply for planning permission before letting the property as an HMO — even if you have an HMO licence. Planning approval typically takes 8–13 weeks and can be refused on grounds of "saturation" (too many existing HMOs in the area). Always check the local council's Article 4 register before purchasing for HMO conversion.

What's a realistic per-room profit per month?

Strong HMO deals deliver £100+ per room per month after all costs and tax. £75–100/room is decent. Below £50/room, the operational complexity of running an HMO (higher tenant churn, communal area conflicts, all-bills management, more frequent maintenance) usually isn't justified by the small margin over standard BTL. The per-room metric is how experienced HMO investors compare deals because it normalises across different room counts — a 4-room and 7-room HMO can be compared on equal footing.

Why are HMO mortgages more expensive than BTL?

HMO mortgages typically run 0.5–1% above standard BTL rates because lenders see them as higher risk: more tenants means more wear and tear, higher void risk per room, and more complex management. Lenders also restrict the pool — only specialist HMO mortgage products are available. Most lenders require a 25% minimum deposit (some 30%), an HMO licence in place or being processed, and an ICR stress test at 145% (vs 125% for basic-rate BTL applicants). Always use a specialist HMO mortgage broker rather than a generic BTL adviser.