What are HMO properties?

A house in multiple occupation (or HMO) is a property that is privately rented and houses three or more tenants who aren’t from the same family group.

Also known as ‘shared houses’, HMOs accommodate students, professionals and all kinds of groups that are different to the traditional family unit.

There is a growing demand for these types of houses, particularly in urban centres and outer city regions.

An HMO must fulfil a number of criteria laid out by the Government.

It’s important for anyone who is considering becoming and HMO landlord or to invest in an HMO understands these regulations and ensures they are fulfilled.

HMO Property Designs are experts at sourcing, reconfiguring and managing HMOs. Our portfolio is based mainly in the north west of England.

This is partly to take advantage of the reasonable prices compared with areas like London and the South East, but also because Manchester and the surrounding towns and cities have a strong economic future.

What is the criteria for an HMO property?

Houses in multiple occupation must fulfil certain criteria to be considered an HMO. The exact configuration can vary between each local authority, but broadly speaking, the UK Government stipulates the following:

The definition of an HMO property is fulfilled when the residential dwelling meets these two criteria:

  • At least three tenants live in the accommodation, from more than 1 household.
  • The occupants (who are from more than one household) share toilet, bathroom or kitchen between them.

A large HMO property must comply with the following:

  • At least five tenants (there can never be just one tenant in an HMO), who form more than one household.
  • Multiple tenants have shared facilities in HMOs including toilet and bathroom or kitchen.

What defines a ‘household’ in houses in multiple occupation?

You’ll notice that the definition of HMO properties includes reference to a private rental house with three or more people, who must be from multiple households.

In this context, a household is defined as either a single person renting a property by themselves, or members of a family that all live together in the residential property.

And the definition of a ‘family’, which can come under the definition of ‘households’ can include the following.

For example:

  • Tenants who are living together or married (including same-sex).
  • Half-relatives or direct relatives, for example, siblings, aunts, uncles or grandparents.
  • Step-children and step-parents.

Who is responsible for bathroom or kitchen facilities?

The HMOs landlord has a legal responsibility for the dwelling.

Landlords are responsible for ensuring that bathroom or kitchen facilities and the rest of the rental house is free from potential hazards and safe for each tenant to live in.

The landlord is most likely the person who owns the mortgage on the property. However, the accommodation can also be maintained by a management company contracted by the owner to act as agents.

What are the safety responsibilities of a house in multiple occupation (HMO) landlord?

Houses in multiple occupation are rental properties by definition.

This means that an HMO property provides rental yields to the property investor or landlord who owns it.

In return for the rental yields, the landlord has various responsibilities concerning safety, as regulated by local councils and central Government in England.

Safety responsibilities include gas safety, fire safety and ensuring the multiple occupancy accommodation is fit and proper.

Gas safety

Tenants can expect landlords to:

  • Ensure gas equipment is maintained by a Gas Safe registered engineer.
  • Ensure a registered engineer carries out an annual safety check on every gas flue and appliance.
  • To receive a copy of the safety check record within 28 days.

Electrical safety

Tenants can also expect that HMO landlords ensure:

  • The entire network of electricity throughout the property is safe.
  • Every electrical appliance is safe.

Fire safety

Tenants can also expect HMO landlords to cover fire safety, which includes:

  • Always following regulations as stipulated by the local council and other bodies for multiple occupancy accommodation.
  • The property has easily accessible escape routes at all times.
  • A smoke alarm is fitted on each separate storey of the property.
  • A carbon monoxide alarm is secured in any room of the property that has a coal or wood stove or fire place.
  • Ensuring any furnishing or fittings in the properties are fire safe.
  • Installing extinguishers and fire alarms. While the Government’s stipulations are that this is only necessary in a large HMO (see above for the definition), each local council will have its own rules for HMOs.

What property types fall under the definition of an HMO property?

At HMD, our properties are sourced largely from the North West of England. This is because the properties are relatively cheaply priced for the investor, and because there is a high demand for HMOs by tenants.

Our properties are mostly terraced houses that can be reconfigured into HMOs for three or four tenants.

However, HMOs aren’t confined to terraced properties. Many different property types can also come under the HMO housing definition. These include:

  • Shared houses for students, young professionals or individual tenants.
  • Buildings that house a number of bed sits with occupants sharing key facilities.
  • Hostels.
  • Properties that contain separate flats that are not fully self-contained.
  • Blocks of flats that have been converted into HMO accommodation.
  • Accommodation for employees.
  • Private halls of residence for students.

Features of a typical HMO property

To comply with HMO regulations then, the occupied property needs to have three or more separate tenants who live in different rooms.

Regulations state that the HMO occupants of the property must not form one single household (as defined above).

The housing is owned by a mortgage holder who may be a property investor, a management company or an individual landlord.

Tenants cannot use the housing for anything other than their main place of residence.

And at least one of the tenants must pay rent to the property owner or landlord.

Usually, all of these factors have to be in place for the accommodation to be considered an HMO. However, local authorities can change these and issue an HMO declaration.

Why landlords must work closely with the local authority to comply with HMO regulations

Tenants can complain directly to local authorities if they consider the property falling short of expected HMO standards.

HMOs are closely regulated by the local council and landlords must ensure that everything is in place for each tenant.

The tenant pays the rent to the landlord and if any of the rooms are deemed unsafe or unacceptable by the council (this usually means Environmental Health) then the landlord could be prosecuted.

In extreme situations, it has been known for the council to take over management of the HMO from the landlord. However, this is very rare.

Do all HMOs have to be licensed?

In normal circumstances a licence is only necessary for a large HMO (as defined by the Government and outlined above).

The Government further specifies that a licence must be granted before the landlord can rent out the large shared property.

An HMO licence lasts for five years maximum, so landlords must reapply after that time.

However, even if the HMO is smaller and fewer tenants pay rent on the property, it may be necessary to get a licence.

Licensing is controlled by local authorities, so any mortgage holder that wants to rent out their housing to multiple tenants must check on the necessity of a licence first.

Each separate HMO, with separate rooms for each tenant needs a different licence

Furthermore, licensing authorities can include their own conditions to the licence. The mortgage holder should apply for the licensing information themselves, or through a managing agent.

HMD handles all of these regulations, licensing requirements and housing reconfiguration on behalf of our investors.

It’s part of the unique package that we offer, covering key organisational issues for investors. This allows them to lower their risk and benefit from rental income from the occupied property.

Why HMO Property Designs managing the investment makes it easy for mortgage holders

Our schemes involve investors buying the property directly from the vendor, but from our portfolio.

As they select the property from our own portfolio of the most suitable HMOs on the market, this saves lots of time and hassle.

The investment risk is lower when the team handles all the aspects of the reconfiguration and decoration of the property.

HMD provide fully vetted tenants up front

We also provide each property with at least three tenants, all of whom have passed mandatory checks and vetting and have paid a deposit.

We project manage the refurbishment/configuration of the property working as agents for the investor.

Any licensing, regulatory and legal requirements are also handled by our team. This ensures that the mortgage holder is fully legal and ready to let the HMO immediately.

In other words, the investor has a viable business with their choice of HMOs right from day 1.

Without this kind of scheme, HMO landlords and investors could discover that there are a number of legal requirements that they must fulfil. This sucks their time and could render the investment less valuable for them.

Investors make a steady passive income with our investment schemes

We offer a number of specially designed investment strategy schemes, designed to maximise rental income for the HMO property owner.

HMOs generate higher yields than more traditional buy to let property rentals, and this combined with lower house prices due to the region we have selected offers excellent value investment opportunities.

Stamp Duty Land Tax for investors who buy more than one residential dwelling

Whether investors decide to buy one of the properties from our sourced portfolio, or multiple properties, there are various risk factors to consider.

Stamp duty tax relief is available for investors who purchase more than one property. This includes properties reconfigured into HMOs or bought on a buy to let basis.

Anyone buying houses or flats for investment reasons and outside of their main dwelling is eligible to pay mandatory Stamp Duty Land Tax (SDLT) at 3%.

For non-residential purchases (those that could be used as buy to let investments or HMOs) the surcharge is 3%.

A client that is on a search for a specific investor project on the market should consider the following rates of SDLT.

If its value is up to £150,000, there is no SDLT to pay.

However, the next £150,000 (ie, the money between £150,001 and £250,000) is taxed at 2%.

The final amount – the money above £250,000 – is taxed at 5%.

A round-up of reasons to invest in HMOs

The first and most obvious reason is that investing in HMOs results in substantially higher rental yields.

We can guarantee HMO yields of between 15% and 20% on the houses we have carefully sourced. This equates to a profit of more than £13,000/ annum.

There are fewer possibilities of arrears due to rent coming from a number of tenants. A single let property not paying obviously has different ramifications for the landlord than one person out of four not paying.

Void periods aren’t as damaging or significant as the income from the other people in the house will continue to be paid.

There is a constantly increasing demand for affordable and flexible accommodation solutions in city centres and the outer areas.

In our professional opinion, this demand will continue to grow, particularly as people begin to recalibrate following the COVID-19 pandemic.

City centres are opening up and finding new ways to operate in the post-pandemic environment. There will be considerable changes to the UK’s high streets as mixed use spaces become more prevalent.

We will also see more urban areas expanding into the HMO market, so that young professionals and those who want to access all of the benefits of city centre living can do so in an affordable and achievable way.

Unique HMO solutions offered by HMD

We combine the best of all worlds in our HMO investor schemes.

They’ve been developed and improved based on our collective experience within this market and within commercial property.

A balance must be struck between the initial outlay and the ongoing management of the house to ensure that the client achieves the returns they’re expecting.

And for tenants, getting on the housing ladder is just not feasible in many cases. Prices are rising all the time, and people do not want to compromise on the quality of their living space. This naturally turns their thoughts to HMO properties, as they can take advantage of a high- quality home while sharing the burden of rent.

Head to our main website for more information on exactly what we offer and how it works to command a passive, regular, reliable income.