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HMO Meaning and 2021 Guide

May 13, 2021

Houses in multiple occupation (HMOs) are a very common type of rental property throughout the UK. HMOs can be a great investment vehicle to achieve high ROIs, but landlords with HMOs do have some additional legal responsibilities to fulfil in order to successfully manage these properties and reap the rewards. If you’re a landlord of a house of multiple occupation, or you’re thinking of investing in a HMO, here’s our guide on the meaning of HMO, plus HMO responsibilities, HMO licensing and more.

What does HMO mean?

What’s the meaning of HMO? It is likely that a property would be considered to be an HMO if there are three or more tenants occupying it who are not from 1 'household' (for example a family), and sharing a bathroom, toilet or kitchen facilities, and rent is paid. It is also commonly called a house share or a multi-let.

A traditional household is considered to be an individual person, or members of the same family residing in the same property. For example, four unrelated people living in three separate rooms would be considered to be three households, while one property housing two separate couples would make two households.

HMOs often comprise a shared property where the tenants are not related to one another, or a house that has been split into several rooms. Hostels and shared student accommodations may also be considered HMOs. For a property to be an HMO, it must be the occupant’s primary residence and rent must be paid.

There is also a separate category known as a large HMO - this is a property that houses at least five tenants that together form more than one household, again with the tenants sharing bathroom, toilet or kitchen facilities, and rent is paid.

It’s important to note that different local authorities can have different criteria for defining a HMO, so it’s worth checking with your local authority. You can also get in touch with our property experts if you’re unsure if your property falls under this criteria, read the legislation itself (Sections 254 – 260 Housing Act 2004), or read the information on HMO meaning on the Government website.

Why do HMOs often mean more money?

  • Rental yields can be as much as three times more. For the best rental yields currently available in London, check out our rental yield data. You can also drill down in specific areas to find average rental yields with our rental yield map.
  • There is less exposure to rent arrear risk; with multiple tenants, if one falls behind on their rent, there are still other occupants paying theirs. With single-let properties, arrears may mean the loss of an entire property’s income.
  • There are potentially less impactful vacancy periods - i.e. if one tenant vacates, there are still other rooms that are tenanted.
  • Demand for affordable, flexible housing is increasing. The trend in the UK’s larger towns and cities is that of average household sizes declining. Combined with an increase in population, the demand for HMOs has never been higher. When it comes to student HMOs alone, data from UCAS shows that younger students are applying for and completing university education at all-time high rates in the UK. These students represent the perfect tenant demographic for HMO properties. Data from the Office of National Statistics also highlights that in the UK, disposable income has only been lower twice since 1999 than it is now, prompting further demand for the affordability of HMOs.

What are the added responsibilities for HMO landlords?

As mentioned, while it can be a very lucrative investment option for landlords, it is important to understand the additional legal responsibilities that come with HMOs. Landlords of HMOs must:

  • Install regulation fire safety equipment, including a kitchen heat detector and mains-powered smoke alarms
  • Repair and maintain facilities and communal areas
  • Ensure that the property is never overcrowded
  • Ensure that an annual gas safety check is conducted
  • Hold an up-to-date legionella assessment of risk
  • Provide washing and cooking facilities suitable for the number of occupants
  • Check the electrical systems a minimum of once every five years
  • Provide sufficient waste bins for the number of occupants
  • Ensure that there are accessible escapes routes that are kept clear
  • Complete a council-approved fire risk assessment

It’s important to understand that these are legally binding obligations that must be upheld regardless of the contents of a tenancy agreement.

Read More: Do I Need Planning Permission For My HMO?

Do landlords need an HMO licence?

Mandatory HMO licensing

There are three types of licensing that operate in England: Mandatory HMO licensing; Additional licensing; and Selective licensing.

Most landlords of large HMOs must hold a mandatory licence. Should your property house five or more unrelated tenants who share facilities and at least one tenant pays rent, legally you must apply for an HMO licence. In addition, there are national minimum sizes for rooms used as sleeping accommodation that landlords must adhere to in order to get their license.

There is an exception, however, for purpose built flats situated in a block of three or more self-contained flats. However, these purpose built flats could also still be licensable if your council has introduced an additional or selective licensing scheme (see below).

Criteria for classing a property as a large HMO used to include that the property be three or more storeys high. Since 1 October 2018, however, that stipulation was dropped. It is best to check whether your property is legally classed as a large HMO under the new guidelines with your local authority.

Additional HMO licensing

More than half of the London boroughs now operate additional licensing schemes.

However, you will NOT need an additional licence if the property is an HMO that already requires a licence under the mandatory HMO licensing scheme.

If your HMO doesn’t require a mandatory license and is in London, take note that there are additional licensing schemes in the following boroughs:

  • Barnet
  • Brent
  • Camden
  • Ealing
  • Enfield
  • Greenwich
  • Hackney
  • Hammersmith & Fulham
  • Haringey
  • Harrow
  • Havering
  • Hounslow
  • Kingston upon Thames
  • Lewisham
  • Newham
  • Redbridge
  • Southwark
  • Tower Hamlets
  • Waltham Forest

Via London Property Licensing, correct as of November 2020.

Each local council will decide what type of HMOs need a licence within the designated area. For example, London Property Licensing points out that Newham Council has included all HMOs within its additional licensing scheme, while the additional licensing scheme in Ealing excludes HMOs occupied by three people unless in a mixed use commercial or residential building.

It’s a complicated scheme, but there’s a really great resource here; at the top of the page there is a button which reads ‘select borough’. Click on this for information on your borough’s specific rules and regulations regarding additional HMO licensing.

Selective HMO licensing

In addition to the above, over a third of London Boroughs operate selective licensing schemes which require every HMO in the area to be licenced, and these licences will specify what the maximum number of allowable occupants is for the property in question. This can be regardless of size, number of storeys, or number of occupants.

Again, selective licensing does not apply if your property is an HMO that requires licensing under a mandatory HMO or additional licensing scheme.

London Property Licensing has a handy list of the boroughs (as of November 2020) that operate selective licensing schemes:

  • Barking & Dagenham
  • Bexley
  • Brent
  • Ealing
  • Hackney
  • Hammersmith & Fulham
  • Harrow
  • Newham
  • Redbridge
  • Southwark
  • Tower Hamlets
  • Waltham Forest

Before granting a licence, the local authority must be satisfied that the landlord or Property Manager is fit and proper to hold a licence and that the property meets required standards.

It’s also important to note that some councils require that all landlords be registered, regardless of their rental property’s type. If you are in any doubt, it’s best to check with your local council.

We recommend getting in touch if you are unsure if your HMO meets legislative requirements. You can also reach out to your local council directly to get an answer in writing.

How do I obtain an HMO licence?

You can apply for an HMO licence through your local council. Individual councils will set their own terms for the licence. You can either apply directly yourself, or at Portico we can submit an application on your behalf for a small fee.

When applying for a licence, a landlord must inform a number of different parties, as well as pass on these party’s details to their local council. They include:

  • The freeholder of the property, or any other owners if applicable
  • Any tenants who have three years or more left on their existing tenancy agreement
  • The lender, if there is a mortgage in place

You can find out further information regarding where to apply for an HMO licence here.

How much does an HMO licence cost?

Like the particular terms of the licence, your local council will also individually set the cost of your HMO licence. This is usually charged as a non-refundable fee at the time of applying, and will not be refundable regardless of the outcome of the application.

An HMO licence typically lasts for up to five years, but not longer than this. The council is obligated to inspect your property at least once during this period, to ensure that it is up to code and does not have any safety or health hazards.

What are the penalties for not being licenced for an HMO?

If you are an HMO landlord but do not hold a valid licence for it, you are committing a criminal offence and you should be aware of the HMO licence fines that you could be subject to, which are often in the range of £10,000 - £40,000.

You could even be prosecuted and receive an unlimited fine. In addition to this, you could be ordered to repay to the council up to 12 month’s housing benefit.

If you hold a licence but were to break the terms of it, you could face a fine of up to £5,000. Were you to break the terms that stipulate the maximum number of allowable tenants under your licence, you could even be fined as much as £20,000.

It is also imperative to understand that, in addition to these penalty risks, if your HMO property is not properly licenced, you may not be legally entitled to evict any tenants. For example, issuing a Section 21 notice in the case of an assured shorthold tenancy will result in it being deemed invalid, should the HMO not be properly licenced. For advice on evictions, read about the changes to Section 21 here.

Are you a HMO landlord or interested in investing in a HMO?

Savvy investors know that HMOs can make for excellent investments. They can provide rental yields that simply can’t be achieved with traditional buy-to-lets. In the right areas, the demand for affordable yet flexible housing options, as provided by multi-let properties, has never been greater.

There may be some more red tape, higher start-up costs, and it can be a little trickier to secure finance for an HMO. However, the rewards are high, and once you successfully navigate some of the additional considerations, you’ll likely have a very healthy ROI on your hands.

If you are a HMO landlord needing advice, or if you are interested in investing in a HMO, get in touch with our Sales or Lettings Managers on 020 7099 4000.

You can also use our online rental calculator to see if you’re charging the correct rent, or use our online property valuation tool to get an up-to-date valuation on your HMO or property in London.

Disclaimer: The information in this blog post is for general informational purposes only. You should not rely on this information as a basis for mankind any business, legal or other decisions. While we endeavour to keep the information up to date, licensing and schemes are always changing, and Portico makes no representations or warranties of any kind about the accurateness of the above information. Portico will not be liable for any fasle, inaccurate or incomplete information presented on this website.

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