A landlord's guide to houses in multiple occupation (HMO)
Key takeaways
An HMO is a property rented out by three or more unrelated people forming more than one household who share common facilities like a kitchen, toilet or bathroom.
HMOs require more intensive management due to higher tenant turnover and stricter health and safety standards
HMOs can be profitable as rent is charged per tenant, per room (bills are usually included)
Legal requirements for HMO landlords include obtaining a licence, ensuring compliance with safety regulations, and adhering to specific property standards
What is a house in multiple occupation (HMO)?
A House in Multiple Occupation (HMO) refers to a property let to at least three people from different ‘households’.
A household consists of either a single person or members of the same family who live together. It includes people who are married or living together.
In an HMO tenants are not from one 'household' but share facilities like the bathroom and kitchen. Examples include student houses and young professional house-shares.
Various properties can qualify as HMOs. These include large, converted houses and flats with three or more bedrooms. Typically each tenant will have their own tenancy agreement and own bedroom. This is in contrast to a ‘single let’ where the property will be let on one tenancy contract covering all rooms and tenants.
Landlords of HMOs must meet stricter safety and management standards than those required for non-HMO rental properties.
Why do landlords invest in HMOs?
HMOs appeal to landlords because they often generate higher rental yields than single let properties.
This is because bedrooms are let on a per-room basis. The combined rent from several bedrooms will usually be higher than the rental income possible by letting the property as a single let.
There is less risk of void periods with a HMO as even if one tenant moves out and a replacement needs to be found, there will still be rental income from the other rooms.
In areas with high demand for accommodation, HMOs can be a popular choice, as they cater to various needs, such as students, young professionals, and those seeking shared living arrangements.
What mortgage do HMO landlords need?
Most buy-to-let mortgages require the landlord to let the property as a single let on an Assured Shorthold Tenancy (AST). If you need a mortgage to buy an HMO, you’ll need a specialist HMO mortgage. This may require a larger deposit.
HMO landlords will be taxed on the rental income from an HMO in line with the current BTL tax regime.
What is HMO licensing?
If you want to let your property as an HMO in England or Wales you must contact your council to check if you need a licence.
Usually, an HMO must have a licence if it is occupied by five or more people forming three or more households.
Councils can also include other types of HMOs for licensing via the ‘selective licensing’ scheme. This was introduced by the Housing Act 2004 and gives local authorities the power to require landlords to obtain a licence for certain privately rented properties within a designated area.
Licences require a fee which will be confirmed on application – the fee can vary between local authorities and you’ll need a separate licence for each HMO you run. Properties are required to meet minimum standards to get a licence.
It is a criminal offence to operate an HMO without a licence. If you let a HMO without a licence, you could receive an unlimited fine. Other penalties may include rent repayment orders or a criminal conviction.
How is being a HMO landlord different to being a single-let landlord?
The management and maintenance of HMOs is very different to letting a property to one household. HMOs require more hands-on involvement.
HMO landlords may be required to deal with more tenant issues than they would with a single let. Letting rooms to people who don’t know each other can lead to conflict - having house rules in place can help.
It is standard practise for HMO landlords to include bills such as energy, water, council tax, and broadband in the rent. This means the landlord will need to hold accounts for these services in their name and ensure bills are paid on time.
Landlords can use technology to manage rent payments, bill payments, safety inspections and other HMO administration.
The demographics and turnover rates of tenants in HMOs differ from those in single let properties. HMOs typically attract students, young professionals, or short-term tenants on low incomes. This can result in a higher tenant turnover.
To make a profit, landlords should research the local housing market to make sure there is sufficient demand for HMOs. Areas with students, young professionals and low income workers typically have high demand for HMOs.
More tenant issues
Bills included in rent
Higher tenant turnover
It’s vital to understand the work involved in managing a HMO when choosing a HMO as a BTL property.
What are the legal requirements for HMOs?
Landlords must ensure:
The property is licensed (as above) and licensing conditions are met
The property is not overcrowded
There are adequate cooking and washing facilities
Fire safety measures are in place (e.g. fire doors, alarms, extinguishers)
Rooms meet minimum size requirements
Regular electrical safety checks (every 5 years)
There is an up-do-date Energy Performance Certificate (EPC)
What are the property standards for HMOs?
HMO properties must adhere to specific standards for multiple occupants. These include:
Each bedroom in an HMO must be large enough for the occupant.
The Government requires single rooms to be no smaller than 6.51 square metres. Double rooms for two people should be at least 10.22 square metres. However, local authorities can set their own minimum room sizes.
HMOs need adequate cooking and washing facilities for tenants. This includes a sufficient number of bathrooms and kitchens. All occupants must have reasonable access to these facilities.
Landlords must ensure all HMOs meet strict health and safety regulations.
This includes installing and maintaining smoke alarms. Safe appliances must be provided. All electrical and gas equipment must be regularly checked and certified by professionals.
Additionally, fire safety measures like clear escape routes and fire doors are mandatory.
Minimum room sizes
Facilities and amenities
Health and safety standards
What landlord insurance is needed for HMOs?
Standard landlord insurance may not cover an HMO. Instead you will need specialist insurance to cover the specific risks that apply to HMOs. Look for policies that protects the building itself and related risks such as injury or loss suffered by a tenant.
HMO landlords should also look at landlord home emergency insurance.
What are the pros and cons of being an HMO landlord?
Pros:
Higher rental yields
Reduced void periods
Steady cash flow
Popular in student towns and urban areas
Cons:
Higher startup costs
More management required
Strict legal compliance
Greater tenant turnover
