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What is an HMO? (House of Multiple Occupation)

What is an HMO? (House of Multiple Occupation)

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.

HMO licence

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.

Visit our HMO page here to learn more.

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.


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