A three-flat or multi-family house of multiple occupations – also known as an HMO – is a home that is rented by three or more people who aren’t associated (i.e., a family).
Because landlords are interested in a more efficient way to run their rental portfolio, they may be willing to allow HMOs.
Although there is additional work to do, the potential for greater rent income and a larger number of tenants to collect money from is enticing. Furthermore, certain properties and locations are particularly suited for HMOs. A busy university area with large extendable homes, for example. Because HMOs generally cost less than traditional renting, some individuals prefer them over conventional tenancies when it comes time to pay rent.
Many landlords have sought to maximize the capabilities of their portfolios as a result of increased regulation and financial difficulties, such as Section 24 and the 3 per cent stamp duty surcharge. One of the most popular tactics alongside incorporation has been to convert rental homes into HMOs to gain from higher yields and rental returns.
There are several things you’ll need to consider if you’re thinking of converting a property into an HMO, such as complying with legal requirements and making the house liveable for more people.
What actions should I take right away?
HMO Licensing
Getting the right licence is one of the most crucial legal aspects of renting an HMO. The regulations governing HMO licensing were revised in October 2018, with a potential consequence of 157,000 more properties.
If you’re having an HMO, you’ll likely need a license. If your home is let to five or more people from different households and at least one tenant pays rent, it will be considered a big HMO and will require a licence. Even if some, but not all, of these conditions are met, you will still require a license and should verify with your local authority. An HMO licence is good for five years at a time and each HMO requires its licence.
HMO Fire Safety & Smoke alarms
There are also several other legal requirements that you must follow to obtain your license. Sending a current gas safety certificate to your local authorities on an annual basis, installing smoke alarms and carbon monoxide detectors, and keeping safety certificates for electrical equipment accessible upon request are just a few examples.
HMO Minimum Room Sizes
In the wake of the licensing modifications, minimum HMO room sizes were determined while landlords were required to follow certain standards.
- Every HMO with a floor area of less than 4.64 square meters is required to notify the local housing authority.
- Ensure that the floor area of any room in an HMO used as sleeping quarters by one person over the age of ten is at least 6.51 square meters.
- Ensure that the floor space of any room utilized as sleeping quarters for two persons over the age of ten is at least 10.22 square meters.
- Ensure that the floor area of any room in the HMO used as sleeping quarters by someone under the age of 10 is at least 4.64 square meters.
- Make sure any space less than 4.64 square metres in the HMO is not used as sleeping quarters.
There were also new rules for landlords to follow as part of these restrictions:
- Any portion of the HMO that is used as sleeping quarters for persons aged ten years old or older must accommodate no more than the maximum number of individuals specified in the license.
- The number of persons aged under 10 years who use it as sleeping accommodation must not exceed the maximum number permitted by the licence.
- Any room in an HMO that is used as sleeping quarters by persons aged over 10 and persons under 10 years old is not utilized as such by more than the maximum number of people specified in the licence and the maximum number of individuals so designated.
Depending on your local authority, you may be required to fulfil additional requirements to rent a safe HMO.
Do you need to convert your property to an HMO?
If your property isn’t HMO-ready, you may need to make modifications to make it suitable for three or more tenants from separate households. Keep in mind that an HMO home must be inhabitable and provide enough room for renters to comfortably live in. You’ll also need to think about things like space, layout, amenities, furnishings and appliances.
If you transform your home into an HMO, the local government will inspect it within five years. They’ll conduct a Housing Health and Safety Rating System (HHSRS) risk assessment to look for any problems. However, it’s worth noting that the HHSRS was scrutinized by the Government in 2019, so its criteria may be modified in the future.
If any severe health hazards are discovered during the inspection, you must immediately address them.
HMO Room conversions
You may be changing the usage of some rooms. For example, spare rooms might be converted to additional bathrooms and reception areas may become bedrooms. You may also need to move or build walls to change room sizes; these are all things you should consider before starting any work. It’s also a good idea to hire a professional when working on the more significant aspects of the conversion, such as plumbing or electrical changes.
Research and budgeting
As previously said, before putting your property on the market, you must do all of the necessary preparations and ensure that you have adequate funds set aside to cover maintenance expenses throughout and after the tenancy.
Although converting a rental property to an HMO might be a smart investment with a high rental yield, it does need more effort and upkeep. As a result, you’ll want to do your homework, take your time and compare the extra work and expense to the additional income you’re likely to make before diving in.
As with all such initiatives, conducting a thorough study and budgeting session can aid you in making the appropriate selections and ultimately profit from the higher returns available from HMO property.
HMOs are rapidly gaining in popularity with a wider range of renters on a budget, according to the boss of one of the country’s largest property investment firms.
Mish Liyanage, founder, and CEO of Mistoria Group, believes HMOs now appeal to more people including professionals, especially those who are progressing through their careers and want to keep costs down.
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