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.
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:
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.
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:
To apply for an HMO licence you will need to contact your local council to start the process.
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:
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.
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:
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.
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, get in touch with our expert team today.