What is a HMO?
A house of multiple occupation is a rented home shared by numerous people who consist of either a single person, families or cohabiting couples. That’s essentially a HMO. However, it’s a bit more nuanced than that, as there are several types of HMO properties.
Types of HMO properties
An HMO needs to be shared by more than two people who are not related and share the toilet, bathroom and kitchen facilities. Each person renting will probably have a separate tenancy agreement, too.
A property shared by three or more people from at least two households with shared areas like the kitchen, bathroom and toilet
A home lived in by the landlord as the owner-occupier with more than two other tenants
Private-owned property shared by students who are treated as a separate household.
When you add five or more people to the property, as the house of multiple occupation would then be considered a “Large HMO” and therefore need a licence (more on that later).
Along with your usual responsibilities on a single-property home, HMO landlords need to adhere to several requirements before letting a house of multiple occupation. It’s essential to understand these obligations, as failure to do so can result in a large fine of up to £5,000.
If your property houses fewer than five people, it’s unlikely that you’ll need a licence. By law, you won’t be required to get one. However, some local councils may ask you to obtain a licence before letting your HMO. That’s why it’s important to check with your local authority before renting out any HMO property. A HMO licence is mandatory for properties with five or more tenants all living under one roof.
Legals for HMO landlords
Display a notice in the property stating the name, address and contact number of the landlord or official property manager
Conduct professional health and safety inspections and ensure the property is well maintained. You should also keep a record of any safety checks and repairs carried out
Ensure the property isn’t overcrowded
Provide working smoke alarms and heat detectors in kitchens and keep fire escapes clear
Carry out a fire risk assessment in accordance with The Regulatory Reform (Fire Safety) Order 2005
Cover the property with the correct landlord insurance for HMO properties
Maintain a clean water supply and proper drainage
Provide an up-to-date legionella risk assessment
Supply any gas/electrical safety records requested by the local council
Maintain a safe environment in all communal areas
Why an HMO is a good investment
HMO's can be a good investment, plus other factors that you may or may not deem beneficial. While we can’t tell you if a houses of multiple occupation is right for you, this type of rental property is regarded as having some benefits. HMOs have been known to achieve higher yields than single-rental property, and for many landlords, the yield plays a significant role in their decision. In some cases, rental yields for houses of multiple occupations have been known to generate up to three times higher than traditional lets.
You could also benefit from fewer void periods with a HMO. If one tenant moves out of the property, you’ll still have other tenanted rooms. In a single-property rental, once the tenant moves out, it becomes empty. Consequently, landlords with a HMO could continue seeing cash flow, even if one of the rooms sits empty. Arrears is an issue landlords can encounter, and it’s the same with HMOs. However, having multiple tenants means it’s more likely that you’ll receive rent from the majority of people living in your house even if one person falls into arrears. Whereas a single-tenant property wouldn’t generate any rental income if the tenant falls behind.
Houses of Multiple Occupation (HMO) mortgage?
Getting a mortgage for a HMO property is harder than a single-let house. There is more responsibility with HMOs, and many lenders consider them a higher risk. That means the lender might not be willing to lend or they will only do so on high HMO mortgage rates.
What are HMO lending requirements?
HMO mortgage criteria differs from lender to lender, but as a rule of thumb, you can expect some additional requirements. These may include:
A communal seating area
Minimum property value, which could be from £50,000
Minimum level of experience, usually between 12 months
No more than one kitchen in the property
Maximum number of storeys (usually no more than four)
Maximum number of bedrooms, usually between six and eight
The maximum percentage of the property’s value you can borrow (known as the loan-to-value or LTV) is usually 75%.
On top of these added requirements, you will also need to meet the lender’s standard buy-to-let lending criteria that covers age, income and credit reports.
Our FAQ has more useful information that might be helpful too.
By using our Free Calculators, you will be able to type in the loan amount and the term your want to pay the loan off over, and get an instant idea of the monthly repayments. Our How To Video will also show you how to do this here.
The team at Sardison Capital have been helping business owners to raise finance for over 10 years. So if you're interested in learning more about your options, get in touch with the team today to see how we can help you.
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