Why Invest in HMO Property? [Infographic]

A landlord’s guide to HMO requirements and regulations

This area of the private rented sector has proven to be an incredibly lucrative one for landlords, and whether you’re a seasoned investor or just starting out, it’s important to understand how to invest in an HMO property.

The first thing you need to do is gain a deep understanding of HMO requirements. How does a property meet the HMO criteria? Do you need a licence? Are they managed differently to a normal rental property?

We uncover everything you need to know about HMO requirements and regulations in this guide.

For additional property investing advice, contact the consultants at BuyAssocation today.

A row of HMO townhouses

What is an HMO?

HMO stands for ‘house in multiple occupation’ and it’s a type of residential property that has shared amenities like bathrooms and kitchen facilities. This makes it perfect for unrelated people who want to live in a communal environment and share the cost of living.

An HMO is a building or a part of a building (such as a flat) that is occupied by three or more persons, living as more than one household, where rent is paid, or some other consideration is made

An HMO is most commonly characterised by three or more unrelated individuals living in a house, renting bedrooms and sharing kitchen and/or bathroom facilities. HMOs can also be formed when a building, or part of a building, is occupied in another manner, as defined in Sections 254-259 of the Housing Act 2004.

A large HMO is a separate category and describes a property that houses over five tenants from more than one household. These households also share amenities such as kitchens and bathrooms.

HMOs are also known as ‘shared houses’, but they aren’t just for students or young people – a lot of older professionals want to live in an HMO because it gives them access to all the amenities they need without having to pay the high price of renting their own place.

If you’re a landlord and you want to rent out your property as an HMO, there are some specific requirements that you must meet. In order for the property to qualify as an HMO, it has to be the tenant’s only or main residence, and it has to be used exclusively for housing tenants.

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Types of HMOs

1. Houses in Multiple Occupation can be defined in numerous ways. The following types of property qualify under the HMO sector when let to tenants:

2. A house or flat that is rented out to at least three tenants who form two or more households.

3. Houses that have been converted entirely into bedsits or other non-self-contained apartments and are rented to at least three tenants, each forming two separate households and shared facilities.

4. An occupied building with at least two lodgers who have a licence to occupy their accommodation alongside the owner (and his/her family)

5. Self-contained flats converted from a building which did not meet the standards of the 1991 Building Regulations and which have more than one-third of their apartments leased on short-term agreements

6. A converted house consisting of one or more flats that are not entirely self-contained (i.e. the flat doesn’t come with a kitchen, bathroom or toilet), occupied by three or more tenants who are part of two or more households.

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What is an HMO licence?

In the UK, HMO licensing is the legal system created in 2006 through the Housing Act of 2004 and used by local authorities or councils to prescribe safety and amenity standards, as well as determine a property’s suitability for occupation.

By citing the Licensing and Management of Houses in Multiple Occupation and Other Houses (Miscellaneous Provisions) (England) Regulations 2006, schedule 3, it applies throughout England & Wales, by taking into account the maximum number of households or persons that can live at a property.

Does my HMO need a licence?

If your property falls within the official definition of an HMO, it does not mean that a licence is automatically required in order to let your property to tenants legally. You will need to contact your local council to find out if you are required to obtain an HMO licence.

On the contrary, larger HMO properties will meet the criteria for a mandatory HMO licence and failure to obtain one can result in serious financial sanctions. Each individual HMO property you rent out requires a separate licence.

Do HMO licences expire?

Licences for HMOs usually last for five years, but some are granted for shorter periods. HMO licences must be renewed before they expire for each individual property.

The licence holder should renew their HMO licence before it expires by putting a reminder in your diary. It’s not necessary to worry about stuff like this if you use landlord software, since reminders are all included.

The criteria for HMO licensing

  • Five or more tenants

    If you are letting a property to five or more people that make up over two separate households, you are required to have an HMO licence. This is because such properties fall under certain criteria that make them potentially dangerous environments, and thus require extra safeguards to protect the high quantity of residents

  • Selective licensing

    In cases where a licence is not mandatory, councils may implement a selective licensing scheme. There are some properties that fall into this category, including student houses near universities and blocks converted into self-contained apartments.

    Regardless of whether a property is an HMO or not, all properties within a council’s selective licensing scheme must be licensed. The purpose of this is usually to raise standards in the private rental sector, where there are problems with poor-quality housing and poorly managed properties.

  • How are unlicensed HMOs penalised?

    If you’re renting out a property and you don’t have the correct licence, you could face serious consequences.

    If your home meets the criteria of being an HMO, then it needs to have proper licensing to comply with laws that protect tenants and landlords alike. If you are a landlord who fails to apply for a licence, you could face fines of up to £20,000 and additional costs. You can also be fined separately for failing to comply with licence conditions and all cases will be heard in court.

  • HMO licence refusals

    It’s possible that an HMO licence could be refused, due to non-compliance. For example, the use of incorrect or insufficient smoke alarms and inadequate fire standards.

    The Licensing Officer can go on-site to inspect the property and has the right of refusal if they identify that the property does not meet the licensing conditions.

    It is crucial that all legal requirements and safety standards are met to be granted a licence to let the property as an HMO.

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How to apply for a licence

When it comes to HMO licences, the responsibility falls on the landlord. If you own or lease a property that meets the HMO definition and receive rent either directly from the tenants or through an agent, you are responsible for obtaining the HMO licence. Property managers can apply for the licence on behalf of landlords.

The documents you will need to obtain and show evidence of in your licence application may include:

– Gas safety certificate for the property
– Electrical safety certificate for the property
– A plan of the property
– PAT certificates
– A copy of the fire risk assessment
– A sample tenancy agreement

If you’re applying for a licence to manage an HMO, you’ll need to notify all of the people bound to the legal agreement of your pending licence as well as the city council.

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The regulations and requirements of HMO properties

HMOs come with various rules and regulations to ensure tenants’ health and safety is prioritised. This is due to the numerous instances of tenants being found living in unsafe environments in the past. HMO rules are put in place to provide adequate living space, reduce fire risks and give satisfactory facilities to tenants.

Landlords looking to invest in HMO properties in the UK need to be prepared to comply with the legal minimum standards as set out in the Housing Act 2004.

These rules and minimum standards include things such as:

– The minimum size of rooms
– Duty of care requirements
– Landlord duties towards tenants
– Fire safety measures
– The provision of kitchen, refuse and toilet facilities
– Installation of furnishings and furniture

We will explore these areas in more depth throughout this guide. For now, it is important to note that these factors are non-negotiable and any drop in standards or failure to comply with strict management regulations can result in fines and/or a revoked licence.

Why invest in Britain’s HMO property sector? Three good reasons.

The responsibilities of HMO landlords

The legal responsibilities of a landlord do not change if you own an HMO. These include protecting deposits and meeting energy efficiency rules.

HMO landlords have additional duties, however. The following are among them:

– Provide maintenance and repair services for communal areas and facilities
– A heat detector should be installed in kitchens along with mains-powered smoke alarms
– Performing a gas safety inspection every year
– Provide sufficient natural lighting, ventilation and water supply
– Affirming that the property isn’t overcrowded
– Renters should have access to adequate cooking facilities and laundry facilities
– A sufficient number of waste bins should be provided for the number of tenants
– Five-year inspections of electrical installations are essential
– Conducting a fire risk assessment – speak with your council to ensure this is done correctly
– Ensuring that escape routes are always accessible and clear

There is a legal obligation for HMO landlords to comply with these requirements, regardless of what the tenancy agreement says.

Arden Gate

HMO minimum room sizes

In 2018, the government introduced new legislation relating to the minimum room sizes for HMO properties. This was introduced as a means to combat overcrowding and ensure that the safety of multiple tenants in one home is achieved.

The bedroom sizes that all HMOs must meet are as follows:

– For anyone over the age of ten years old, a 6.51 square metre room is required
– For any two people over the age of ten sharing a room, the room must be 10.22 square metres
– For one child under the age of 10, the room size must be 4.64 square metres
– A room with a total floor area of less than 4.64 square metres cannot be utilised as space for sleeping

Where a room has a ceiling height less than 1.5m cannot be calculated towards the minimum room size requirements

HMO fire safety regulations

HMOs are considered to have a higher risk of fire than single-let properties and regular rental properties, so that means they have different fire safety standards and regulations.

The fire safety measures you need to take depend on the number of people in-house at any one time, and whether there are any vulnerable tenants in your building. In general, there should be a fire alarm installed on every level of the property. You’ll also need to ensure that these alarms are linked together so they all go off if there is a fire.

In addition to this, you should also have a fire extinguisher in every room where there is a potential for a fire hazard. It’s essential that everyone knows how to use this extinguisher – and where it’s kept!

To find out the exact rules, it is imperative to contact your local HMO Enforcement Officer for guidance on the required standards.

Some requirements may include:

– Adding fire doors to the property
– Providing fire blankets and fire extinguishers
– Replacing door handles and/or locks with specific types to maximise safety
– Installation of CO alarms

HMO landlord electrical safety regulations & EICRs

Before renting a property to tenants, HMO landlords have a legal duty to ensure any electric appliance and equipment provided are safe for use throughout the entire tenancy. To confirm that electrical installation is safe, a HMO landlord must get an Electrical Installation Condition Report (EICR) from an approved contractor or qualified electrician.

The electrical safety certificate will verify that the property is safe and free of risks and fire hazards. The electrical system should be checked over at least once every 5 years.

The property assessment will check for:

– That all electrical installations are in a safe condition and not overloaded
– That there are no potential fire hazards or risks of electric shock
– That there is no defective electrical work on the premise
– That there is no lack of earthing or bonding

In the event that a landlord needs to apply for an HMO licence, proof of electrical safety checks will need to be provided also.

HMO gas safety requirements

In accordance with the Gas Safety Regulations 1998, all landlords of residential properties are required to maintain safe gas appliances, pipework, and flues.

It is the landlord’s responsibility to repair and maintain all gas appliances to ensure that they remain in a good and usable condition. Annual Gas Safety Checks should therefore be carried out by a Gas Safe Registered Engineer. These can be found on the official list of qualified heating and gas engineers.

When it comes to repair work and renewing your Gas Safety Certificate, make sure you only use registered engineers as they are insured and able to sign it off. Both tenants and landlords should obtain a copy of these certificates.

Under the Houses in Multiple Occupation Management Regulations, the local authority may request a copy of the current Gas Safety Certificate. HMO landlords must be able to provide this upon request and every time a new document is signed off – as well as part of any licence application.

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For further professional advice and access to HMO blocks, contact BuyAssociation

Investing in the property market is a great way to increase your financial stability and build your wealth. However, it can be difficult to find a reliable partner who can help you secure discounted down payments and investment opportunities in the UK property market.

At BuyAssociation, we work closely with leading developers, financial partners and management companies to grant our investors access to off-plan investment properties. One of our main asset class focuses is HMO investments. By talking to us, we will work to understand your goals and identify high-yielding HMO blocks that are fully managed and completely hands-off. This will give you the peace of mind you need in knowing that regulations and safety standards are all met before you invest.