What Exactly Is an HMO and What Do I Need To Do?
Whether you are a first-time landlord or have an established portfolio of properties, investing in UK real estate is a proven strategy for many.
House prices have continuously risen across the UK over the last decade, and show no signs of slowing down, even in the current climate.
There are several routes available for prospective investors to choose such as; renting to long-term tenants, student housing, renovating properties for resale and more. This has made property investment or expanding a property portfolio more accessible than ever.
While traditional investment options remain popular, other options are becoming more prevalent in the market, such as HMO’s.
HMO properties are an increasingly appealing choice for landlords as they have several advantages, one being they are often more profitable than other types of rental options.
However, there are some important points to factor in ahead of investing in an HMO property.
Our guide covers everything you need to know.
What is an HMO property?
Let’s start at the beginning, HMO stands for houses in multiple occupation. The Housing Act of 2004 defines an HMO, In simple terms, a rented house shared by multiple people or ‘households’. A ‘household’ can consist of a single person, multiple families or cohabiting couples.
To be considered an HMO, the property must:
- Be shared by more than two people
- Be the main residence of the tenants
- Have rent paid by the tenants
What types of HMO properties are there?
While the idea of a multiple occupancy HMO seems straightforward enough, several types of properties can be deemed as an HMO.
These may include, but are not limited to:
- Private halls of residence
- Blocks of converted flats
- Employee accommodation
So what exactly is an HMO and what do you need to do?
The term HMO can be quite broad and cover many property types but a key thing to remember is that properties tend to be considered as HMO if the people living there are not related and share toilet, bathroom and kitchen facilities.
Why are HMO’s different from other rental properties?
While tenant health and safety should be paramount in all rental properties, standards within HMO’s are taken particularly seriously by local authorities. Tenant issues need to be considered and acted upon quickly and effectively.
What standards need to be maintained in HMO’s?
There are several key things to remember when managing an HMO, including:
- Gas and electrical safety
- Fire safety
- Providing rubbish disposal facilities
- Adequate cooking, washing and cleaning facilities
- Managing to overcrowd
Risk assessments are a key part of being a responsible landlord, and with running an HMO there are additional safety requirements enforced by councils. HMO properties must have a mains smoke detector, well-fitted internal doors and thumb turn locks, just to name a few.
Certification is also an important factor, and while not a standard requirement for most rented properties, for HMO’s in Greater Manchester and elsewhere, you will need to produce certificates for two annual tests:
- A Portable Appliance Test (PAT test)
- A hard-wired electrical test
- Fire/smoke alarm test
What is an HMO Licence?
One of the most important aspects of running a successful HMO property is understanding the legal aspects and ensuring that you have the correct licencing in place.
A consideration for an HMO landlord is whether your HMO property requires a licence. Some HMO’s are legally required to be licenced to ensure the property is being managed correctly.
Your HMO will need a licence if:
- There are five or more occupants living on the property
- Two or more separate households living on the property
- The building is at least three stories high
- Your property is deemed a large HMO
If some of the criteria apply but not all, then you may still need a licence, and it’s wise to check with your local authority.
How long do HMO licences last?
HMO licences usually last for five years, but in some instances, a licence may be granted for a shorter term.
It’s important to remember that individual properties require their own HMO licence, and must be renewed before it expires.
How much do HMO licences cost to buy?
This is dependent on the council your HMO is governed by. Councils have freedom on how much to charge for a mandatory HMO licence, and so the cost will vary depending on the location of your property.
HMO licence fees are only due to cover the cost of running the licencing scheme, so you shouldn’t expect costs to be too high.
Be aware, there are penalties for running an unlicensed HMO if it meets the requirements, and you can face fines of up to £20,000 for failing to comply. It is the responsibility of the landlord to ascertain whether the building requires a licence.
If for some reason your HMO licence application is rejected, your application fee will be refunded.
How to apply for an HMO licence
As a rule of thumb, it is the responsibility of the landlord to apply for the HMO licence.
You’ll need to contact your local council to request an application. The Housing Act requires you, as part of the application, to notify the various ‘relevant persons – those with an interest in the HMO – and share those persons’ details. These ‘relevant persons’ can be:
- Any other owners of the HMO if the landlord does not own the freehold
- Any person who is a long leaseholder
- Any mortgagee
- The proposed licence holder (unless that is the applicant)
- The proposed managing agent
- Any person who has agreed they will be bound by the conditions of the licence if accepted
The local authority must be satisfied that the licence holder is the most appropriate person to hold the HMO licence. This is presumed to be the landlord, but the council can deem the applicant unsuitable. For example, if the applicant is not fit and proper or the arrangement seems inadequate the council may agree the licence is held by someone more appropriate, such as a managing agent.
If you are an owner of an HMO, are thinking of investing in the Greater Manchester area or want to convert an existing property, it’s recommended that you speak to a specialist before making the investment decision.
At homes4u, we are specialists in handling HMO’s and as part of our property management service, we can offer expert advice about compliance, management and HMO ownership. Get in touch with us today.