HMO 101: HMO Licensing
What is a HMO?
A House in Multiple Occupation (HMO) refers to a property that is let to at least three tenants, who are from separate households and share amenities such as a kitchen, shower, or bathroom.
Why are HMOs a popular investment?
Rental yield for the average UK property is just over 3%. For Houses in Multiple Occupation (HMOs), it's nearly 7%.
In a shifting economic climate, London property owners in 2023 have the opportunity to capitalise on the movement of young professionals toward cities. Professionals need places to live, and rental properties are in high demand. This means that if you have a house with 3 or more bedrooms — it could be the perfect opportunity to invest in a HMO and achieve a higher rental income.
However, there are things you should consider before deciding to use your property as a HMO, and one of the main things is licensing…
What is an HMO Licence?
A HMO licence is a legal requirement that applies to many properties rented out to 3 or more unrelated tenants. The process for obtaining a HMO licence varies from local council to council, so it's important to do research in your local area. The licence must be renewed every three to five years, depending on the local authority requirements.
You could receive an unlimited fine for renting out an unlicensed HMO. Obtaining a licence can be a daunting task and it’s important to make sure you seek the right guidance and support.
Do all HMOs need a licence?
No, not all HMOs need to be licensed. If you’re considering letting your property to a maximum of 4 individuals, then some local councils do not require the property to be licenced. However, these smaller HMOs must still comply with the required national HMO standards.
Another important thing to consider is whether you will need planning permission. If an Article 4 Direction has been made in your area, you will need to apply for planning permission in order to change the use of your property from residential (Class C3) to a HMO (Class C4). You should check your local council website to find out if this applies to your property.
What are the different types of HMO licences?
There are 3 types of licences to consider and each one will only apply under certain conditions or in particular locations.
Mandatory HMO Licensing
This is required for HMOs with 5 or more tenants, who collectively form more than one household and share some kind of amenity.
Additional HMO Licensing
This type of license targets smaller HMOs that are not covered by mandatory licensing, aiming to uplift the safety and management standards. Requirements can vary between boroughs, but HMOs with 3-4 tenants typically meet the requirements.
Selective Licensing
This is area-specific and applies to properties in neighbourhoods often experiencing low housing demand or persistent antisocial behaviour issues.
It's important to note that a property can only be licensed under one of these schemes, so understanding the nuances of each is key to compliance. Make sure to check with your local council to see which licence scheme (if any) applies to your property.
Is a HMO Property Right for Me?
HMOs offer countless benefits to landlords, including:
Higher rental income - the average rental yield in the UK is 3.6%. For HMOs, it's 7.5% — almost double.
Increased property value - on average, HMOs are worth on average 32% more than other properties in the UK.
Reduced void periods - HMOs are in high demand and they attract a steady stream of tenants. As you are renting out individual rooms, you are less likely to lose all of your rental income when individual tenants move out.
However, HMOs can also present challenges, such as a more extensive licensing process to managing multiple tenants on separate tenancy agreements. It’s also important to stay up to date with the management requirements when running a HMO.
At Rachel’s Rent 2 Rent, we work with Landlords to make HMO management simple and stress-free. We make it our job to keep up to date with all the relevant changes to local and national HMO rules and regulations. We can assist with HMO applications, or complete them on your behalf. You are simply guaranteed your rent by us every month, and we take care of everything else.
Speak to a member of our team today to find out how we can help you!