Perhaps we should start by first defining what and HMO is: HMO stands for “house in multiple occupation”. For a full and detailed official discussion of the definition we would advise to head over to the UK Government’s website on the topic.
Put simply, an HMO is a property that is being let on room by room basis (and also falls within a few other technical designations). The basic idea is simple: instead of renting your property to a single family on a single tenancy agreement, you let it on room by room basis. This used to be an amazing value-proposition as it meant that instead of letting your 3-bed house with 2 receptions for say 1,600 pounds, you would be able to rent it out for 2,750 by renting the rooms for 550 each (converting the receptions into bedrooms as well).
Sounds great! What’s the catch? The catch is that renting to 5 different unrelated people is way more cumbersome than to one family unit. Further, as you are renting to 5 separate people, you have to organize the bills for them and quite often mediate even the smallest domestic disagreement. That can be a lot to take on! On top of this, the government decided that such properties would benefit from being regulated (through HMO licences) and thus multiple requirements are put on such properties – most quite reasonable, some not as much. To mention a few, the property needs to be fully equipped with fire extinguishers, fire doors, designated fire exits, carbon monoxide detectors etc.
We welcome and applaud all of the above: as the properties become occupied by multiple people, there are additional issues and risks that need to be mitigated, this is all well and understood! Unfortunately, however, over the last few years things have become so heavily regulated as to make having an HMO almost not worth the trouble. Some councils such as Newham simply don’t allow any new HMOs regardless of their size (even a simple 3-bed flat cannot be let out to 3 unrelated people, say students). Others, such as Brent and Harrow, have used the HMO regulation to extend the HMO licence requirement and introduce “Additional Licencing” schemes. It is important to note that the price for HMO licences and additional licences vary across councils, but can be as much as several thousand pounds.
All of this has driven many landlords to shy away or simply abandon the idea of letting to anyone but a traditional family. That, however, can leave hundreds of thousands of people in a bind. Say you are making between 1,500 and 2,000 pounds per month after tax. For rent, you can have the option of renting a room for as little as 350-400 pounds per month with all bills included (single bedrooms of around 6.5m² are available in London for such a price) and a studio flat of at least 900 pounds per month with bills on top, which can easily amount to another 200 pounds or 1,100 pounds in total. It is obvious that paying close to 1,100 pounds for housing and utilities is nearly impossible for someone with salary in the 1,500 to 2,000 range.
What does all of the above mean? Well, our verdict is that HMOs are here to stay despite the attempts of some councils to eradicate them altogether. It is not the ideal living condition for an adult, but sharing a house or flat with others might not only be the wisest decision finance-wise, it could also easily be the only option for many.
Thus, our kind advise is to do things by the book and work closely with your local council to ensure you are operating an acceptable HMO that provides the necessary amenities for your tenants to be able proudly to call “home”.
Should you need any assistance or advise as you consider whether to convert to or keep your property as an HMO, please don’t hesitate to contact us – we would be happy to help you and guide you through the process!