All properties are different, so it’s up to you, as a landlord, to decide how you’ll get the most from yours.
You might be more comfortable renting it out to one person or two people in a relationship. However, sometimes it’s best to convert more rooms into bedrooms and rent to a group of unrelated tenants, either students or professionals. This property would then be classed as a House in Multiple Occupation (HMO).
If you choose this route, there are specific rules and procedures you’ll need to follow to avoid any legal difficulties, which we’ll break down in this guide. We’ll also answer some questions, like ‘What are the risks and rewards of renting a House in Multiple Occupation?’ And ‘what exactly constitutes an HMO?’
An HMO is a property (such as a house or flat) in which tenants who are unrelated live and share facilities like the kitchen, toilet and bathroom. It’s common for professional sharers and students to live in HMOs – in fact, for the latter, it’s one of the defining features.
According to the Housing Act 2004, a building or part of a building is considered an HMO if:
- Your property has been converted into self-contained flats, but doesn’t meet 1991 Building Regulations
- At least a third of those flats are let on short tenancies
- It’s occupied by three or more unrelated households* as their main residence
- The unrelated tenants share an amenity (cooking facilities, bathroom, toilet)
- Tenants have their own individual rental agreements
- The property is a bedsit or hostel
- Students live at the property
*A ‘household’ is either an individual or members of the same family who live together in one space (so that could mean a couple or members of a family living in a self-contained flat in your building, or a single student renting a room. Both are considered ‘households’)
Remember, your property is exempt from being an HMO if:
- You, the resident landlord, live at the property with two other unrelated people
- It’s occupied by no more than two people
You’ll need to apply for a license for every HMO in your property portfolio. These last for a maximum of five years and must be renewed before that time expires. If you don’t do either of these things, you could face fines of up to £20,000 – not ideal.
But how do you know what type of license to get? Well, there are two types of HMO licensing:
- Mandatory licensing – i.e. if the property has three or more storeys, or five or more unrelated tenants making up two or more households
- Additional licensing – usually government-imposed licensing due to a number of poorly managed HMOs in the area
To apply for a license, you should pick up an application from your HMO’s local council.
The total rental yield for an HMO is generally higher than for a standard buy-to-let – and the difference seems to be growing all the time. HMO rental yields increased by nine per cent in the last quarter of 2014, according to telegraph.co.uk, and experts predict the strong performance will continue. But why is this?
The main reason is likely to be the slow wage growth we’ve seen over the past five years, meaning many tenants simply can’t afford their own large house or flat. Renting a room or a self-contained flat in a block is a far more financially attractive proposition for them, and for you – the landlord.
Ultimately, the average rent throughout England and Wales is growing all the time. The following stats are correct as of June 2015:
- In London, the average rent has reached a whopping £1,500 for the first time
- Average rental values for tenants in the UK are 11.6 per cent higher than the same period in 2014
- Average UK rent, excluding London, is £747pcm – 7.8 per cent higher than 2014 (£692pcm)
So the more rental agreements you have on one property, the more money you could make from your investment.
Keeping residents happy and creating long-lasting tenancy agreements takes work on the landlord’s behalf. For one, you’ll need to make sure all facilities are in an adequate condition, and that there isn’t an overcrowding issue. For instance, no more than five people are legally allowed to share a kitchen in an HMO.
You’re also responsible for all safety elements, including installing smoke detectors in each bedroom and communal areas, ensuring there are sufficient fire extinguishers, and creating necessary escape routes.
For a full list of safety procedures, and more information on HMO licensing, have a read through this government document.
Otherwise, for more information on HMOs, get in touch. We offer a full HMO consultation and management service which can help you maximise on your property investment and covering all angles relating to HMO property investments.
To find out more about Brent council HMO and the Selective licensing scheme you can visit here
For more information on HMOs in Westminster and Central London HMOs you can visit here
Camden Council HMO information here