Contrasting examples of HMO properties in the pictures above – on the left a well-maintained and desirable shared house, on the right a house in Reading, converted to bedsits (but with no smoke alarms fitted) which was burnt-out in 2010.
As part of our ongoing policy to advise landlords on the rental market, we present the first in our series of blogs about HMOs – House in Multiple Occupation, and what this means to investor landlords.
House in Multiple Occupation
The definition of a HMO (House in Multiple Occupancy) is described on the government website direct.gov.uk * “A property is an HMO if it is let as a main or only home to at least three tenants, who form more than one household and who share a kitchen, bathroom or toilet.”
(*NOTE – the direct.gov website has been extensively updated in 2012 to make it clearer to follow, and the description is now altered – follow the link above for the new wording but we think the old wording sums it up pretty succinctly, so we have left it in our update.)
A household can consist of a single person, couple, couple with children, relatives living together (including step-children, grandchildren, uncles, aunts, nephews, nieces, cousins and foster children). It can also include carers, nanny, and au pairs.
HMOs can be contained in a house, flat or other converted building, they could be purpose-built or places like guest houses that are let out during the closed season, or hostels. Bedsits which share kitchens and bathrooms also qualify as HMOs.
If you are in doubt about whether the property you own is a HMO it is best to contact your local council to discuss the accommodation and to get an opinion on whether it does need to be classified as an HMO.
In certain circumstances an HMO must be licenced by the local authority and this varies from area to area, the local council will be able to give you more information on this. You will always need a licence where your property:
1) Has three or more stories
2) It is occupied by five or more people who form more than one household.
Market trends for Landlords with HMOs
Previous Labour governments set legislation in place to have all these properties registered with their local councils so that they can be monitored. With the private rented sector due to rise against the rate of property ownership the government are under pressure to ensure the rights of tenants are not compromised.
The current government is concerned to clamp down on landlords who do not comply with legislation regarding properties of multiple occupancy (HMO). This type of housing tends to hold the most vulnerable tenants – social housing, young people sharing, students, immigrants and people on low budgets. The result of this is that unscrupulous landlords have been known to ignore issues of basic safety.
As a landlord of a HMO property it is important to work within the legal guidelines. This makes sense from a business point of view, as well as a moral one. If properties are well-maintained landlords and their agents are more likely to find more discerning tenants, who in turn are more likely to take care of the property.
The better your property is looked after the more it is worth in capital terms. As HMOs can form a large number of the property in certain areas, keeping them in good condition benefits all the landlords by making their investment more desirable, and therefore increasingly profitable.
- Landlords of sought-after properties can command the best rents within the price band
- Landlords of popular properties will have more choice of which tenants to accept
- Better maintained properties will suffer less void periods between lets
HMO property can be very profitable for landlords because they are usually housing more people per square foot of property space, and so can attract higher rental value returns on a cost:income ratio.
We are always happy to discuss investment potentials with purchasers and landlords, and your local Estate/Letting Agent is a good place to start if you are considering getting into this market.
Our second part in the series comes out here next week, but if you can’t wait please click through to part 2.