When you invest in a property with the intention of renting it out, you have a decision to make over the type of tenants you want to occupy it.
Some landlords prefer single professionals as it reduces the wear and tear that will occur, while others like the security of having a working couple or a family renting the property, as with two or more incomes it offers more reassurance regarding the rent.
If a landlord decides to convert multiple rooms into separate living areas to create a group of house-sharing occupants, this is known as a House in Multiple Occupation (HMO). It can be anyone from students to professionals who are seeking more affordable accommodation – the rule being that when a house is shared by multiple people it usually falls into this category. Owning an HMO also means there are a number of regulations that come with being a landlord of this type of property.
Is my property an HMO?
If there are three or more unrelated tenants living in at least two separate households within your property, sharing the toilet, bathroom or kitchen facilities, this is classed as an HMO.
When it comes to HMOs, a household is defined as a single person, a couple in a relationship, a married couple, or an entire family living together in one property. For example, three unrelated people living in different rooms would be classed as three households.
According to the Housing Act 2004, the following all qualify as HMOs:
- Properties converted into self-contained flats that do not meet 1991 Building Regulations
- When at least a third of said flats are available to rent on short-term tenancies
- Three or more unrelated households are contained in the property
- Either bathroom, cooking or toilet facilities are shared by unrelated tenants
- Each tenant is in possession of their own tenancy agreement
- Students currently live in the property
- The property is being used as either a hostel or bedsit
However, it should be remembered that being a landlord who lives in the same property as two other unrelated people means it is exempt from being an HMO. If only two unrelated people rent out separate rooms and share facilities in the property, this would also be exempt.
Do I need to get an HMO licence?
Since the rule changes made in October 1 2018, all HMOs must have a licence. You must apply for a licence if 3 or more unrelated people occupy at least two different households. The maximum length for any licence is 5 years and if you wish to apply for a new one it must be renewed before the existing licence expires. Fines of up to £30,000 can be handed out if you do not renew in time, or possible prosecution and criminal record if you do not have a licence at all.
There are two types of licence available:
- Mandatory: This is for properties that have three or more storeys, or contain five or more unrelated tenants that consist of two or more households
- Additional: This is for smaller HMOs that have at least three different people living in two separate households, regardless of the number of storeys in the building.
To apply for an HMO licence you will need to contact your local council to start the process.
Click here to view the latest HMO licence requirements in Brent.
Do HMO landlords have any different responsibilities?
Whether you own an HMO or not, as a landlord you have a duty to meet all of your legal responsibilities.
In addition to this, there are a number of additional duties that come with owning an HMO:
- Communal areas and facilities must be maintained and repaired
- Good quality fire safety equipment, such as heat detectors and mains powered smoke alarms, must be installed
- Make sure a gas safety check is carried out each year by a qualified professional
- Ensure the property is not overcrowded with too many occupants
- Provide an adequate amount of cooking and washing facilities for the tenants present
- Give the tenants enough waste bins for the property
- Have the electrical systems checked at least once every five years
- Conduct a fire risk assessment, which your local authority can offer guidance on
- Ensure there are accessible fire escape routes and that these are always kept clear
No matter what terms are stated in an individual’s tenancy agreement, the above points are also legally binding. Many HMO landlords engage a professional management company to fully manage such as Regal Estates to ensure that they comply.
Do HMOs yield more rent?
HMOs will produce a higher total yield than any other type of rental property. According to the Leeds Building Society, rental returns are producing an average of 7.2% or more.
Due to the slow wage growth experienced by many over the past five years, a growing number of tenants have been unable to find the funds required for a property deposit. This has led to a boom in the rental market, as living in a self-contained flat or individual room has become more financially attractive for both tenant and landlord.
Average rental values in England and Wales continue to grow year-on-year. The following stats bear that out, which are correct as of July 2019:
- The average rent in London stands at £1,665 pcm; which is an increase of 3.1% from 2018. In June 2015, the number stood at £1,500 pcm; meaning average rent has grown 10% in just over four years.
- In terms of the UK as a whole (excluding London), the average rent is now £794 pcm; a growth of 2.2% from 2018. In June 2015, the figure was £747pcm; a rise of 6% in just over four years.
As you can see, the more rental agreements you have in place for a single property, the more opportunity you have to maximise the return on your investment.
Additional information
To find out more information related to safety procedures and HMO licencing, this government guidance document will provide full details.
You can find out more about the Brent Council HMO and the Additional licencing scheme by visiting their website.
More about HMO licencing within Harrow can be found here.
To get more insight into HMOs in Westminster and Central London, visit the City of Westminster council website.
Visit the Camden council website if you wish to find out more about HMOs in the borough.
Our HMO consultation and management service has helped countless landlords over the years to make sure their properties are fully compliant and ready to maximise rental yields. If this is your first time managing an HMO, or you are considering converting your property into one, contact our expert lettings team today on 020 8459 2530 or email lettings@regalestate.co.uk.