Letting a property as an HMO – or house in multiple occupation  – can be highly profitable. Rental yields for HMOs can be an impressive three times higher than other properties. Demand is high with people renting, and sharing, into their thirties, forties and beyond. 

Managing an HMO brings good returns, but it isn’t easy money. HMOs are heavily regulated and most need a licence. With licensing, comes extra costs and demands on landlords’ time. Is it worth it? It can be, but you need to know what you’re getting into and make investment decisions based on the real cost in terms of both money and time. Alternatively, you can find a professional lettings company that deals with sharers, who can help with the license and other admin. Whichever route you choose, we’ve put together these HMO guidelines to help.

What is an HMO?

An HMO is any property occupied by at least three people who make up more than one household, and share facilities including a kitchen, bathroom or toilet. 

A household in this context can be either a single person, or two or more people from the same family who live together, including couples. A two-bedroom flat occupied by a couple and a single person would count as an HMO, but the same flat occupied by two single people would not. Shared houses, groups of bedsits and student accommodation all count as HMOs.

Which HMOs need a licence?

An HMO will always need a licence if it is a ‘large HMO’. These are HMOs with five or more occupants. Until 2018, large HMOs also had to have at least three storeys, but this is no longer the case.

If you have a smaller HMO, you may need a licence, depending on your local authority. Sometimes, a local authority will have different licensing requirements in some areas. For example, they might regulate HMOs in areas with lots of poor quality student housing more heavily. 

How to get an HMO licence

To get an HMO licence, you’ll need to apply to your local authority. Fees vary depending on the authority and the size of property, but are generally somewhere between £500 and £1000. 

You can apply via this government website. You’ll need a separate licence for each HMO you run and you’ll also need to renew your licence every five years. 

To get a licence, you’ll need to:

• Provide the local authority with an up-to-date gas safety certificate.
• Provide safety certificates for wiring and electrical appliances if requested.
• Install and test smoke alarms. 
• Demonstrate that the property is safe. You can use the housing health and safety rating system to help you work this out. This guidance was designed to help landlords identify hazards.
• Provide enough facilities (such as bathrooms and kitchens) for the number of occupants.
• Demonstrate that the HMO manager - which will either be you or your agent - is a ‘fit and proper person’. This means not having a criminal record and not  having breached the landlord code of practice.
• Provide enough space. The minimum room size is 6.51m2 for one person over 10, and 10.22m2 for two people over 10. For children under 10, the minimum room size is 4.64m2. If you have loft rooms, take not - any part of the room where the ceiling height is less than 1.5m isn’t taken into account.

The need for space

Living in overcrowded housing can damage people’s physical and mental health. The desire to reduce overcrowding, and make homes safer, drove the strengthening of the HMO regulations in 2018. While tighter regulation makes running an HMO more expensive and time-consuming, it brings benefits too. There is strong demand, especially in London and other big cities, for high-quality shared housing. 

The rise of shared living spaces demonstrates that it is possible for shared houses to be comfortable, high-quality homes. Lyvly only lets refurbished, furnished properties with good transport links in interesting areas  – the kind of properties demanding professionals want to call home. 

What happens if you don’t get an HMO licence?

It is the responsibility of your letting agent (if you have one) to ensure a property is properly licensed if let to an HMO, or they could risk prosecution and an unlimited fine or a civil penalty of up to £30,000. However, landlords could also be ordered to repay tenants up to 12 months’ rent. Recent research showed that 75% of privately rented properties in the capital that required a licence under mandatory HMO or additional licensing schemes were operating without one, putting letting agents and landlords at risk.

Local authorities have the power to crack down hard on landlords who try to run overcrowded or unsafe HMOs. Breaching HMO licence conditions is a criminal offence. This landlord in Salford was convicted and fined £3,500 for allowing her HMO to become overcrowded.

HMO licences have to be renewed every five years. If the local authority finds that a property doesn’t meet its licence conditions, they’ll take over its management until it does. 

HMOs and risk

There’s one big risk that comes with running an HMO: void periods. All landlords should take potential void periods into account when they do their sums, but with HMOS, the risk is higher. With several independent tenants in one property, it’s likely that you’ll have to deal with tenants moving on more often. 

Attracting quality tenants who want to stay for longer can help mitigate the risk. At Lyvly, we operate a matching system which means that our members stay for an average of two years. We also help our landlords obtain their HMO licence and we take responsibility for void periods. We recommend any landlord looking to take on an HMO makes sure that they choose a property with good transport links, in a lively area popular with young professionals. You can’t stop tenants wanting to move on, but you can make sure you’ve got a good supply of new tenants wanting to replace them. 

Should you invest in an HMO?

If you have the capital to buy a high-quality property (or to convert one), and can meet the extra costs of being an HMO landlord, then yes. HMOs offer excellent returns. 

To find out more about the way we let shared property at Lyvly, take a look at our website.