HMO Property; The Ultimate Guide 2019

ultimate guide to hmo property 2019

In this complete and ultimate guide to HMO property, we give you the principles on of HMO property from A to Z.

1. What is an HMO Property

There are different definitions surrounding HMOs (house of multiple occupation) depending on if you are referring to HMO planning permission or HMO licensing, where the definitions.

For the purposes of HMO Planning Permission and Mandatory HMO Licensing the definition of an HMO Property is as follows;

A shared house occupied by between three or more unrelated individuals, used as their only or main residence, forming more than one household, and who share basic amenities such as a kitchen or bathroom.

2. Types of HMO Property Tenants

TypeStudentProfessionalWorkersLHA
Tenancy TypeJointJoint or IndividualIndividualIndividual
Min Tenancy12 Months6-12 Months6-12 Months6 Months
MaintenanceMediumMediumMediumMedium/High
Rent CollectionMonthly or Annual in AdvanceMonthly in AdvanceMonthly in AdvanceMonthly in Advance
GuarantorsYESNONONO

Student – example universities and or medical students or nurses.
Professional – example; a group of university graduates or professionals.
Workers – example; factory workers.
Local Housing Authority – example council tenants either single or couples.

3. HMO Property Investment Model

HMO vs Buy to Let Property Investment

Purchase PriceHMO£200,000BTL£200,000
MonthlyAnnualMonthlyAnnual
Gross Yield12%6%
Gross Rent£2,000£24,000£1000£12,000
Utilities£300£3,600£0£1,200
Voids & Maintenance£200£2,400£100£1,200
Management (Optional)£150£1,800£80£960
Total Costs£650£7,800£180£2,160
Net Rent£1,350£16,200£820£9,840
Net Yield8.1%4.9%

4. HMO Licensing

HMO Property Licensing, enacted in 2006 through the Housing Act of 2004, is the legal system used in the UK, by a local authority or council, to prescribe standards of safety and amenity, and decide the suitability for occupation, of a licensable HMO property.

Type of HMO Property Licensing

Mandatory HMO Licensing; a scheme covering the whole of England and Wales.

An HMO is deemed to need a Mandatory license if:

  • It is occupied by 3 or more persons; or
  • It is occupied by persons living in two or more separate households; and
  • It meets:
    1. The standard test; or
    2. The self-contained test but is not a purpose-built flat situated in a block comprising 3 or more self-contained flats; or
    3. The converted buildings test.

Additional Licensing; a scheme covering some parts of England and Wales, where a local authority can impose a licence on other categories of HMOs in its area which are not subject to mandatory licensing.

An HMO is deemed to need an Additional license if

  • It is situated in an area the local authority has designated subject to additional licensing.

5. HMO Planning Permission Use Classes

HMO Planning Permission

What is HMO Planning Permission?

HMO Planning is the formal permission from a local authority or council, for the erection or alteration of buildings or similar development, for the use class HMO, C4 (Small HMO)  or Sui Generis HMO (Large HMO).

Types of HMO Planning Permission and Use Classes

  1. C4 HMO Planning; small shared houses occupied by between 3 and 6 unrelated individuals, as their only or main residence, who share basic amenities such as a kitchen or bathroom.
  2. Sui Generis HMO Planning: shared houses occupied by 7 or more unrelated individuals, as their only or main residence, who share basic amenities such as a kitchen or bathroom.

6. HMO Amenity Standards

HMO Property Amenity Standards, are the number and type of amenities that must be provided in all Houses of Multiple Occupation in accordance with the size and type of HMO property. If the correct amenities are not present, a condition will be included in the licences requiring that they are provided within a set time limit (maximum 5 years).

The National Minimum Amenity Standards cover the following topics:

  1. Heating
  2. Washing Facilities 
  3. Shared Kitchens
  4. Individual kitchens (within units of accommodation)
  5. Individual bathroom/toilet facilities
  6. Fire Precautions

Note: Minimum standards DO NOT apply to Selective Licensing

Local authorities will often publish their own HMO guidance amplifying their requirements or even imposing more stringent standards. You should check with the relevant local authority regarding any such local guidance.

IMPORTANT: Our website can only give general guidance. You always need to specifically check the status of any property individually and take appropriate advice including general guidance from the local authority where it is located.

7. HMO Tenant Find

8. HMO Management

9. HMO Property Mortgages & Finance

HMO Property Mortgages and Finance

The type of HMO Finance an investor chooses should allow them to extract maximum value out of the transaction, pay the lowest fees possible, get the best service and also get the deal over the line and done. HMO specific lending became common a few years after HMO licensing was introduced.

HMO Mortgages

An HMO mortgage is a type of mortgage specifically designed for HMO or multi-let properties. It allows for the letting of the property under multiple tenancies under the terms and conditions of the HMO mortgage. Normal BTL mortgages do not allow for the letting of property under multiple tenancies under their mortgage terms and conditions. Subsequent to this, the letting of any property as a multi-let or HMO, but using a normal BTL mortgage will likely breach the terms and conditions of a normal BTL lender.

If a BTL mortgage lender finds out that this has occurred (via the HMO register for example) the consequences can be severe. The repercussions can include but are not limited to the lender having the ability and legal right to recall the mortgage with little or no notice. Your credit rating may also be at risk, and you will unlikely be able to gain any lending with that particular mortgage lender.

HMO ReMortgages

An HMO remortgage is a type of remortgage designed specifically for HMO or multi-let properties, and apart from the fact it is a refinance, it displays the same characteristics of an HMO Mortgage.

HMO Bridging Finance

A bridging loan is a type of finance that is solely designed for short-term usage and can ‘bridge’ the gap until long term finance is in place. They have the ability to provide a large amount of funding in a short amount of time. The strength of a bridging loan is its speed; a bridging loan can be secured within 7 working days depending on your personal circumstances. If you need finance to fund the purchase or development of your HMO property, then bridging finance may be able to get the money you need quickly.

10. HMO Property Valuations

The valuation of House of Multiple Occupation (HMOs) can be undertaken under two methods:

  • Buildings Valuation
  • Commercial Valuation

Buildings HMO Valuations are more common. It’s the valuation you would expect if this property was a normal single dwelling – it’s based on the property market, conditions and comparable information.

Commercial HMO Valuations are rare in that most lenders do not offer this route, they take the view that Buildings Value gives them greater security based on vacant possession resale value.

11. HMO Maintenance

Managing the maintenance of HMO’s is very different from a single let. Aside from the obvious, that there are multiple people letting the property at once, there are also factors such as the tenancy period tending to be shorter, and wear on the property fixtures and fittings is higher.

However, you can keep maintenance to a minimum if you plan for durability from the outset. Good maintenance will help you keep your occupancy rates high which is the key to HMO’s success.

Common thoroughfares have higher amounts of pedestrian traffic and walls are often marked through carelessness or what tenants often call “fair wear and tear”. Certainly, there is a balance here but the chances of you identifying the perpetrator/s are slim to none so best bite your tongue and smile. Whilst I recommend you use acrylic paint so some marks can be wiped off, others will no doubt need touching up or repainting, so make sure you keep a note of the paint you used and store any remainder.

12. HMO Utilities

Gas, electricity and water can vary massively from property to property depending on the size of the house, the number of tenants, type of tenants, energy efficiency and so on.

Most tenants are out of the house during the day so there’s less demand for heating and hot water from 9am-5pm. If you have tenants who don’t work or work shifts, you might find your heating is running 24/7.

Some houses don’t have a water meter, so it’s based on average usage for this size of the house rather than actual consumption. 

If you have a water meter, your costs could be significantly higher. There are plenty of options when it comes to HMO utilities.

13. HMO Furniture

14. Selling an HMO Property

We’ve bought, sold and brokered over 200 HMOs across the UK, and have seen many investors get it right, and an equal number get it wrong. If you are looking to Sell an HMO property here are the highlights of how to go about it.

Follow these simple steps to give you the maximum chance of success at the maximum price.

  1. Consider the HMO Sales Pricing.
  2. Get HMO Documents in order, early.
  3. Picking the Right HMO Agent.
  4. Select the Right HMO Buyer.
  5. Set HMO Sale Transaction Expectations.
  6. Manage the HMO Property Valuation.

Sourcing Agents can typically be unreliable as they are not mandated or under contract by anyone. Dedicated HMO Specific Sales Agents tend to be better all the way around. Check out

15. Buying an HMO Property

16. HMO Deposits

Most HMO deposits usually amount to between one month and six weeks rent (note: this is not the holding deposit that you may be asked to pay to get an agent to stop advertising the property to other potential tenants). You should pay the deposit at the same time as you get the keys and not before.

17. HMO Registers

With over 300 separate councils and local planning authorities in the UK its important to know and work with your local entity in order to have a smooth operation. Check out the HMO Register Page

18. HMO Property Insurance

HMO Property Insurance

A good HMO property insurance policy will cover more than just the building, which undoubtedly is your most important asset, but also protect you against other financial risks associated with letting a house in multiple occupation.

Buildings – Covers the financial cost of repairing a property’s structural damage. We cover both accidental and malicious damage as standard, in addition to environmental damage (e.g. flooding, storms, etc).

Rent Guarantee – Covers loss of rent by guaranteeing monthly rent payments for a maximum of 6 months in the event that a tenant is in arrears and temporarily unable to pay due to their financial circumstances.

Contents – Recommended for furnished let properties, this will protect the landlord from the costs of repairing and replacing furnishings that have been stolen or accidentally damaged by tenants.

Public Liability – Indemnifies the property owner against liability if a tenant, guest or member of the public is injured on the premises, including cover from the financial costs of any claims made due to negligence.

Malicious Damage – Covers the intentional damage caused by the tenant or any other malicious persons to the landlord’s property.

Legal Expenses – Indemnifies the expenses in pursuit or defense of any disputes connected to a landlord’s property that require legal protection.

19. HMO Conversions

20. HMO Capital Allowances

Most businesses are able to claim capital allowances: a tax deduction for the cost of qualifying expenditure on machinery, equipment, furniture, etc. 

Since April 2008, the capital allowances regime has been more generous when it comes to property as all ‘integral features’ are now classed as qualifying expenditure. This includes lighting, electrical systems, plumbing, heating, air-conditioning, lifts and escalators, so it can be a substantial proportion of a property’s purchase price.

Despite this, it is well established that the communal areas in a block of flats or HMO are not part of a ‘dwelling-house’. In fact, where any building comprises ‘self-contained’ flats, the areas outside the flats are not within a dwelling-house and appropriate capital allowances may be claimed.

21. HMO Landlord Associations

An HMO landlords association is an organisation & community for residential landlords and property lettings agents, that is specialised within the HMO property area. Their role is to provide support and representation to their members on all aspects of residential property, including the lobbying of government.

They also provide resources documents and advice. They can help with things from tenant-related problems, to any rights and responsibilities as a landlord, and also keep members up to date on any new or incoming relevant regulations and legislation changes.

Most of the larger associations provide telephone support to members and all the forms and documents involved in being a landlord.

22. HMO Jargon

There is lots of HMO Jargon associated with the HMO property industry, so we’ve put together this handy page that details all associated terminology, jargon, acronyms and abbreviations that get used, to help get investors some clarity.

Asset of Community Value
Land or property of importance to a local community which is subject to additional protection from development under the Localism Act 2011.

Commercial Valuation
Includes the general valuation of portfolios of property, monthly valuations, loan security work and investment valuation.

Energy Performance Certificate (EPC)
A rating scheme to summarise the energy efficiency of buildings in the European Union.

Fire Risk Assessment
A process involving the systematic evaluation of the factors that determine the hazard from fire, the likelihood that there will be a fire and the consequences if one were to occur.

HMO Licence
The licence required to legally operate a house of multiple occupation.

Royal Institute of Chartered Surveyors (RICS)
A professional body promoting and enforcing the highest international standards in the valuation, management and development of land, real estate, construction and infrastructure.

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