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What is an HMO and what are the benefits?

What is an HMO and what are the benefits?

Whether you’re a landlord or a tenant, you’ve probably heard the term ‘HMO’ before.

But what is an HMO and what are the benefits of investing in them as a landlord and living in them as a tenant?

Here, we’ll explain everything you need to know about HMOs…

 

What is an HMO property?

HMO stands for ‘House in Multiple Occupation’.

More often than not, an HMO is a house that is shared by several different tenants, who all rent their rooms and the property’s communal space on an individual basis.

However, HMOs can also be:

  • Hostels
  • Several bedsits in a large building
  • Blocks of converted flats
  • Self-contained cluster flats

Essentially, an HMO is any property housing three or more tenants who make up more than one household (i.e. not related) and share toilet and kitchen facilities.

 

The benefits of investing in HMOs

As with any type of property investment, there are pros and cons of investing in HMOs that landlords need to weigh up.

But there are some clear benefits that HMO investment can bring if done right:

  • HMOs can produce higher rental yields than traditional buy-to-let properties, sometimes as much as three times higher
  • The demand for shared living accommodation tends to remain robust against economic change and uncertainty, due to tenants seeking affordable rooms to rent
  • When one tenant moves out, you still have several others paying their rent while you find a replacement for the vacant room

HMOs, though, can be complex and are subjected to tighter regulations than standard buy-to-let properties.

 

What is an HMO licence?

The rules around HMO licensing changed in October 2018.

Under the old rules any HMO that was occupied by five or more individuals and was three storeys or more in height required a mandatory licence to operate legally.

However, in 2018 the three-storey rule was removed, meaning any HMO that is occupied by five or more individuals from different households now requires a mandatory licence.

Although smaller HMOs with fewer than five individuals may not require a mandatory licence, some local authorities have additional licensing processes in place that mean any sized HMO requires a licence.

So, landlords should always check their local authority’s stance before renting out their rooms.

 

HMO licence costs

The average cost of an HMO licence in the UK is around £600.

But the cost of licences varies from authority to authority, with some as cheap as £60 and others as costly as £1,000.

 

HMO regulations: Other legislation on HMOs

As well as licensing, which is usually subject to renewal every five years, landlords renting out HMO rooms must also:

  • Ensure fire safety measures are in place, including operational smoke alarms on each floor
  • Have carbon monoxide detectors installed in any room with a solid fuel burning appliance
  • Have an annual gas safety check carried out
  • Have an Electrical Installation Condition Report (EICR) carried out every five years
  • Undertake Right to Rent immigration checks on any adults living in their HMO
  • Ensure the property is not overcrowded
  • Make sure there are enough cooking and bathroom facilities for the number of tenants
  • Provide enough rubbish bins
  • Ensure communal areas are clean and in good repair
  • Repair and maintain the structure and exterior of the property, water systems, gas pipes, electrics and sanitary ware

 

How many people can live in an HMO?

While there are no direct rules as to the number of people who can live in an HMO, overcrowding is not permitted.

The basic rules around HMO occupation are:

  • No more than two people must sleep in any room, regardless of age
  • Rooms can only be shared if the individuals consent to doing so
  • Nobody over the age of 12 should share a room unless they are co-habiting as a couple

 

HMO room sizes

The new rules on HMOs in 2018 also included updated regulation on minimum room sizes.

Since October 1, 2018, any room in an HMO that is used as sleeping accommodation must be:

  • No less than 6.51 square metres if the person sleeping in it is aged over 10
  • No less than 10.22 square metres if two people aged over 10 are sleeping in it
  • No less than 4.64 square metres for one person aged under 10
  • Any room with a floor space of less than 4.64 square metres must not be used as sleeping accommodation

 

How many bathrooms should an HMO have?

Health and safety guidance for HMOs states that landlords should provide one bathroom for every four tenants who live in the property.

Many HMO rooms come with en-suites and landlords should always ensure those living in their HMOs have usable, adequate bathing facilities.

 

HMO mortgages

HMO mortgages differ from standard buy-to-let mortgages in that they allow the letting of multiple rooms to multiple people, which normal buy-to-let mortgages don’t allow.

There are a whole host of HMO mortgages available, depending on which stage the HMO property is at, and these include:

  • Development loans for build and construction
  • Refurbishment loans
  • Mortgages and re-mortgages for new and existing HMOs

 

Planning, Article 4 HMOs and the HMO register

Article 4 directions are made by local authorities to remove permitted development rights in their areas – including those on HMOs.

In planning classes, small HMOs housing between three and six people are C4 class, while Sui Generis class covers large HMOs of seven people or more.

To move in and out of the Sui Generis class, you’ll always need planning permission, so any HMO with seven or more people living in it will require planning permission regardless of location.

Moving between C3 class, which is a standard family home, and C4 class falls under permitted development, so in most cases, a small C4 HMO won’t require planning permission.

However, in an Article 4 area, planning permission is required to convert a C3 single dwelling property into a small C4 class HMO, usually because of the density of HMOs that already exist in the area.

You may also need planning permission to create a C4 HMO from a C3 dwelling if there is a planning condition on the property restricting its use.

 

HMO council tax rules

In HMOs where each room is let out on an individual tenancy, the landlord is responsible for paying council tax on the property as a whole.

 

Further reading…

If you’re thinking of investing in an HMO property, one of the most important tasks you’ll undertake is finding good tenants.

Our guide outlines everything you should be looking for when seeking out great tenants for your property.