What is an HMO?
Although local authorities may differ on the criteria they use to define what exactly a house with Multiple Occupancy (HMO) is as a general rule, the definition of an HMO is that a house is which is let out to at least three persons who do not belong to one household (for instance, the family) and share amenities such as bathrooms and kitchens.
A bunch of guidelines for what constitutes an HMO
- A home that has been completely transformed into self-contained housing, and is rented, preferably through Letting Services, to at least three tenants who make up more than one household and that share kitchens or bathrooms.
- A house that has been converted into at least one flat that do not fully self-contained (the flats do not have a kitchen, bathroom or toilet) and is rented to more than three tenants that comprise two or more households.
- A structure that is completely changed into self-contained apartment units in the event that the conversion does not conform to the requirements of the building rules in 1991 and over a quarter of these flats available for lease on short-term contracts
- The house must be used for the tenant’s sole or primary home and should only or exclusively accommodate tenants. Properties that are let out to students or migrants through Letting Agents are considered to be their primary or sole home and this is applicable to homes that are used as residential shelters
Significance of HMOs in the real estate market
HMOs are among the most rapidly growing category of housing in the past decade increasing by 25 percent as per the data provided in Landlord Referencing. Landlords and sellers increasingly rely on HMO Management service providers to reap considerable benefits from property spaces.
The need for HMOs originates mainly from college younger professionals and students, that are struggling to climb on the property ladder, and are therefore turning to renting individual rooms as their only option to get out of the family home. The rise in prices for houses along with the rising cost of living as well as the increase in mortgages has meant that many young people have a feeling that the traditional housing market is not accessible. HMOs can be a more affordable alternative and offer flexible options through Estate Agents for living to those living located in Social housing as well as student housings for younger professionals.
Landlords in the U.K are greatly benefiting from the rising the demand for HMOs as the type of property has a yield that is double an ordinary buy-to-let in the sphere of Property Management. Rents on gross of 12 percent up to 15% can be realized when compared to traditional single-let homes that have an average yield of four to eight percent.
Also, void periods generally preferred when paired with HMOs because even when the tenant leaves there is still a profit to be derived from the remaining tenants. Contrary to that, a vacant period in Guaranteed Rent Schemes that is only for one rent means there’s no revenue getting in. Similar to this you also have less chance of arrears in rent.
Due to the increasing tenant demand and increase in supply from landlords it’s easy to understand the reasons why HMO’s took over and transformed the real estate market.
License for an HMO
Large HMOs are the only ones that can be found within England and Wales need a license according to Property Investment guidelines.
For help determining if your HMO is considered to be ‘large’ Consider the following guidelines:
- It is available to five or more persons who make up more than one household.
- A few or all tenants use a bathroom, toilet, or kitchen amenities
- At least one tenant is responsible for paying rent (or their employer will pay it on their behalf)
If you run an HMO in the form of a housing association or co-operative or health care service, or the police or fire authority and you are not a fire authority, you do not need a permit for your HMO.
But, even if your home isn’t as big and you rent it for less than 5 persons however, you might still need an approval based on your neighborhood. It’s therefore vital to inquire with the local authority regardless whether they will require private landlords to be licensed. HMO Licenses usually last for five years. However, it can be less.