Today, private rented accommodation accounts for one fifth of all homes in Great Britain and is an option that’s very popular with students, young professionals and single people.
Demand for houses in multiple occupation (HMOs) – where each individual bedroom in a property is let with facilities shared and paid for by at least three unrelated individuals – is increasing as people look for a more social and affordable way to live.
With greater potential for higher yields and higher monthly profits than traditional buy-to-lets, HMOs have become an appealing choice for many landlords. However, these benefits come with additional responsibilities and it’s important to be aware of these before starting out.
What are the main pros and cons?
The main advantage of an HMO compared to a standard buy-to-let is the potential for higher rental yields.
Several sources of income from one property means you’ve got the opportunity to generate more rental income than if it was let to one household and you’ll be less exposed when a tenant leaves or falls behind with the rent.
However, HMOs do require more management time and costs than a standard rental property. There are many things to consider such as obtaining a license, making the property fit for purpose, maintenance, utility bills, insurance and finding multiple tenants.
Do I need an HMO licence?
This is an important question for new HMO landlords to answer. Generally speaking, any property with five or more people from two or more separate households which share facilities will require a licence.
However, in some areas, smaller properties with fewer tenants can also require a licence so it’s important to check the policy with your local authority before proceeding.
A licence must be obtained for every qualifying HMO property and will be valid for a maximum of five years.
What are my legal obligations?
Given an HMO has more than one household under the same roof, it follows that legal obligations to ensure the property meets and maintains the correct standards are more involved than for a standard rental. Here is a selection of some of the key issues you need to be aware of:
Number of rooms allowed in an HMO – the property must be fit for the proposed number of occupants, not be overcrowded and have the right facilities. Regulations on bedroom size may vary by council so it’s important to check
Maintenance – the property must be well maintained throughout with professional health and safety inspections performed every five years in line with the Housing Health & Safety Rating System (HHSRS)
Gas Safety Certificate – this must be kept up-to-date, with an approved gas safety check carried out annually
Electrical & Fire Safety – appropriate smoke alarms must be installed and maintained and all electrical appliances must be tested every five years.
Planning – if you’re intending to convert a property to an HMO, you must speak to your local council as some have the power to limit any such change
Council Tax – when a property is converted it can alter the band it’s in
Insurance – a specific HMO insurance policy is required to ensure you have the right level of cover
Do I need an HMO mortgage?
Houses in multiple occupation require a specialist HMO mortgage. Securing finance for property investment is an area that’s constantly changing so it’s important to get expert help in finding the best HMO mortgage.
As an independent broker we can provide you with an HMO mortgage comparison from a range of specialist lenders including Lendinvest, Landbay and Paragon.
The key to success is to do your research. There’s a lot of useful information on government and local council websites that will help you to plan.
Vincent Burch is mortgage director and Vincent Burch Mortgage Services
