Houses in Multiple Occupation (HMOs) Tutorial

Houses in multiple occupation (HMOs) are defined as any property rented out to at least three people who form more than one ‘household’ or family unit, but who share facilities like the bathroom and kitchen. The definition can be extended to blocks of flats too, where the communal areas are shared.

The rules and regulations for HMOs are subject to constant revision and change, so it is imperative that you ensure you are up-to-date with the regulations, on both a national and local level, as fines and penalties can be extremely harsh. Your local council will have further details.

If your HMO is rented out to five or more people, it will require a license. Recent regulatory changes have resulted in more HMOs requiring a license. The changes have also become stricter on minimum room sizes, meaning that the minimum room size is now bigger than it used to be.

The appeal of HMOs to landlords compared with single lets is that HMOs can get more rent for the same property, but involve more work and come with more regulations that landlords need to be aware of. HMOs are normally let fully furnished for example, whereas single lets are often unfurnished making the set-up easier.

It is important to do local research if you are considering HMOs, including the demand and any local restrictions, such as whether planning permission may be required.

Planning Permission, Use Class and Article 4

Under current national legislation, you do not normally need planning permission for a change of ‘use class’ to convert a family home to an HMO, as this by default comes under the banner of ‘permitted development’. However, local councils can adopt an Article 4 Directive which removes the automatic right to certain types of permitted development such as this change of use class, making it necessary to obtain planning permission.

Currently, not all councils impose an Article 4 directive and it may be applied only to certain parts of the city or area. Often this is done to limit the number of HMOs where the local council consider that the presence of (more) HMOs would have a negative impact on the area.

Comparing HMO Income With Buy-to-Let

For landlords of course, the attraction of HMOs is the higher income relative to single lets, but renting by the room can also be attractive for tenants, being somewhat cheaper for them. Typically the rent is almost double for a self-contained one-bedroom property.

Tools and floor plans to convert a single let property to a multi let property

In converting a property to an HMO, you may be able to get three rooms from a two-bed property (where possible), four rooms from a three-bed, and six from a four-bed (in practice, three and four bed houses can vary a lot in size and scope). It may be possible to create even more lettable rooms in the case of larger properties, giving an even greater differential in the returns possible from an HMO.

Bear in mind that any property larger than a modest-sized three or four-bedroom house is likely to give insufficient yield as a single let. Such larger properties should therefore always be considered for multi-lets or conversion to self-contained flats.

The greater gross returns from HMOs may appear to make it an obvious choice over single lets, but it is important to be realistic about the costs involved in both the setting up and running of HMOs, not to mention the extra time and management required.

Setting the property up as an HMO can also involve a longer void at the outset, as there is more work to be done, such as fitting fire doors. Additionally, while it is quite normal to offer single let properties unfurnished, HMOs are usually offered fully furnished, involving extra time and expense.

HMO landlords should also expect to pay utilities, at least up to a certain level.

Remember that when you first set-up an HMO there will be extra work and expense. Here is a list of fairly common works:

  • Fitting fire doors
  • Your HMO may need sound-proofing
  • Locks on doors
  • Extra showers and washing facilities
  • Furnishing
  • High-speed internet connections

Licensing HMOs

A large HMO will always require a licence. The property will be defined as a large HMO if all of the following apply:

  • It is rented to 5 or more people who form more than 1 household
  • It is at least 3 storeys high
  • Tenants share toilet, bathroom or kitchen facilities

HMO licences are generally issued for five years and may cost from £100 to £1,400 or more per year, depending on the area. Some local councils calculate the charge per property, others per room.

If the property does require a licence, the local authority will do checks to ensure it complies with all their requirements such as having sufficient space for the tenants, health & safety requirements and so on. The standards required for licensable HMOs are stricter than for smaller HMOs that do not require a licence.

Only larger HMOs require a Mandatory HMO Licence (under The Housing Act, 2004). However, local councils have the power to impose Additional or Selective Licensing:

  • Mandatory Licensing (UK-wide)

    Is required for HMOs with five or more people forming separate households.

  • Additional Licensing (Local Councils Can Apply)

    Could be required where 3 - 6 individuals live. This may be applied city-wide or only in designated areas.

  • Selective Licensing (Also Decided by Local Authorities)

    Can be required of individual landlords, who may be selectively required to have a licence for all their rental properties.

In Wales, all landlords have to be licenced for any HMOs.

Location and Targeting Tenant Type

Deciding where to buy your HMO should go hand-in-hand with deciding the tenant type to target. If you want to rent to students, the property should be as near as possible to their university. If you want to rent to professionals, consider buying a property close to the city centre, general amenities and good transport links.