HMO Investing FAQs Answered!
Investing in an HMO is in right now, because of the high yields. If you want to jump on this bandwagon, here is a simple list of FAQs on how to get your property HMO ready.
What is an HMO?
The Housing Act of 2004 describes several types of rental properties that could fall under the term HMO or House in Multiple Occupation:
- An entire house or flat which is let to 3 or more tenants, who form 2 or more households, and who share a kitchen, bathroom, or toilet.
- A house which has been converted entirely into bedsits or other non-self-contained accommodation, and which is let to 3 or more tenants who form two or more households and who share kitchen, bathroom, or toilet facilities.
- A converted house which contains one or more flats, which are not wholly self-contained, and which is occupied by 3 or more tenants who form 2 or more households.
Simply put, these are newly built houses or converted homes which are rented out to 3 or more tenants under different, short-term, rental contracts. While the first 2 definitions require that these tenants share communal facilities, the third definition includes houses which do not offer communal kitchens, bathrooms, or toilets.
The law further requires that HMOs must solely be used for residential purposes and that they are used by the tenants as their main or only residence. What this tells us is that if the property is used for commercial use, it cannot be called a HMO.
Do all HMOs need to be licensed?
No, not all HMOs need to be licensed, but if your property falls within 1 of these 4 schemes you have to secure a license to operate an HMO:
Mandatory Licensing -HMOs with 3 or more storeys and house 5 or more tenants, under different contracts, are mandated to have a license, except self-contained flats. Loft conversions and basements used as living areas are included when counting the total number of storeys in a property.
- Discretionary “Additional” Licensing – Local authorities may choose to create an additional licensing scheme for properties that do not meet the requirements for mandatory licensing. There could be as many additional license categories as the authorities deem necessary, but they must be allowed by the Government and last for only 5 years.
- Discretionary “Selective” Licensing – This is applied by local authorities to all privately rented property in areas where specific problems have been identified, such as areas of low demand and/ or antisocial behaviour.
- Transitional Licensing Schemes – Transitional Licensing Schemes are adopted by local authorities who already have their own HMO registration scheme prior the effectivity of The Housing Act. Under a TL, House in Multiple Occupation (HMO) Registration Schemes will be allowed to continue for a further 3 years.
Who applies for the HMO license?
The person having control of, or the person managing the property are the ones legally tasked to apply for an HMO license. These people, usually, are landlords who let the property and collects the rent, but, under the definition, it could also be a letting agent who is given the control and management of an HMO.
Where do you apply for an HMO license and what are the requirements?
HMO Licenses are applied for with the Local Authority. Applicants submit a duly accomplished application form, and then pay the application fee. HMO licensing charges are also added in the fees by some authorities.
During the application process, the property could be scheduled for an inspection, since it’s both the applicant and the condition of the property that are being considered. As part of the inspection, the layout, room sizes, accommodation standards, and fire safety compliance are checked against the authorities’ standards.
Compliance with local standards are, often, the hardest part of the application process. Some end up spending thousands of dollars more on their property just to meet specific requirements, so be sure that compliance is on the top of your minds when building or converting houses for HMOs.
What happens if you don’t get a HMO license?
Noncompliance with any expected license on a HMO is an offense that carries various penalties and actions, including a maximum fine of £20,000.