More property investors are turning into HMOs (Houses of Multiple Occupancy). For landlords, gross yields are higher than a standard buy-to-let property and, while they demand a level of expertise in terms of managing occupants, the buildings and the abundance of legal obligations, the financial yields add up. The statistics show that since Q2 of 2018, the gross yield of an HMO has increased from 8.6% to 9.6% in Q2 of 2019, whereas a standard buy-to-let has increased by 0.3%.

As the population of the UK growing, there is a big demand there. The Office for National Statistics reported that England’s population alone grew by 358,000 in 2018 (up 0.6% from mid-2017). With a rising number of people in the UK looking for accommodation, the shortage of housing stock is another reason for the growth in this market.

Average incomes are now lower than house prices and it appears that individuals (like young professionals) are embracing HMOs in order to save money for a deposit – especially in big cities such as London.

Spareroom showed statistics that only 31% of adults in the UK living in shared accommodation could afford to rent on their own if they wanted, and only 12% could afford to buy their own property. Renting properties in London usually takes around 50% of tenants’ monthly income, sharing accommodation has become a more attractive option.

The research shows that 57% of tenants share for financial reasons, 37% for social and financial reasons and 3% for social. As people staying single for longer in their 20s and 30s, there is more desire to be mobile, social and have better income. By sharing accommodation they can save money on rent and save for a mortgage.

Now it’s easy to understand why HMO is of interest to investors, tenants, and lenders. But it is not the best solution to the UK’s overcrowded cities. Many investors will pursue this route but licensing, legal and financial risks are substantial. HMOs are not always the same: they do not all serve the same geographies, demographics or income brackets. They can be of different quality (including dilapidation).

It is important when considering a lending strategy that lenders should not be afraid of HMOs but approach with the caution they would reserve for any other market.

A family home on a quiet estate is to be converted into a seven-bed House in Multiple Occupation and rented out to Warwick university students.

House on 10 Brill Close in Cannon Park will be converted into a house in multiple occupation (HMO) and will be rented out to Warwick university students.

This has sparked concerns over the loss of family homes at a time of increasing housing need both in Coventry and nationally.

Agent Simon Grove, on behalf of the applicant, said: “This is a large family home and this one had circa six people in the family. They are looking at options to sell it and the only people interested in the sale were people for an HMO relative to Warwick University.”

But councilor Tim Sawdon, arguing against the plans, referenced an “almost identical” application in the area which was rejected in November, adding it would be “totally perverse” to agree to this one now.

At the last application, he said the estate was “being turned into a student village”.

The policies state a 7-bed HMO would require 6 parking spaces, but in this application, there were only three provided.

“If that’s the rule, you must stick to it,” Cllr Sawdon argued.

“If you are going to start saying ‘oh what’s one more going to be’, it really does fly in the face of the policies being set.

“It is over-development of the site. Brill Close is a narrow road and has a hammerhead junction just around the corner.”

However planning officers and highways did not object as they said it was in a “highly sustainable location” within walking distance to the university.

The agent also replied to claims it was over-development, stating the only change is the conversion of the garage, with the footprint not increasing.

Plans were approved six in favour and two against, despite Cllr Catherine Miks’ concerns over the loss of family homes.

She said: “We all welcome the university but these are large houses where developers are basically going in and keeping profits.

“I hope we are looking into the fact we are losing large family homes we need in this city.”

Understanding the Benefits of an HMO Property Investment

Are you looking to diversify your property investment portfolio and maximize your returns? Have you considered investing in a House in Multiple Occupation (HMO) property? In this article, we will explore the benefits of investing in an HMO property, what constitutes an HMO property, the financial benefits, and the demand for HMO properties.

What is an HMO Property?

An HMO property is a house or flat that is rented out to three or more tenants who are not part of the same household and share communal spaces such as kitchens and bathrooms. The rental agreements can be individual contracts or a joint tenancy agreement.

Living in an HMO property can be an affordable option for many people, especially students or young professionals who are looking for a place to live. HMOs can also offer a sense of community and social opportunities as tenants often share communal spaces and interact with each other.

Definition of an HMO Property

The definition of an HMO property depends on the UK government regulations. The Housing Act 2004 defines an HMO property as:

• A property rented by three or more tenants who are not part of the same household
• The tenants share a toilet, bathroom, or kitchen facilities
• The rental period is at least 90 days or more per year
• The tenants pay a rent for their separate rooms

It is important to note that not all shared houses or flats are considered HMO properties. For example, if the tenants are part of the same household, such as a family or a couple, the property would not be classified as an HMO.

Types of HMO Properties

There are different types of HMO properties, each with their own specific characteristics and regulations. Some of the most common types of HMO properties include:

• Standard HMOs: A property with three or more unrelated tenants, sharing a bathroom or kitchen. These types of HMOs are the most common and can be found in many cities and towns across the UK.
• Licenced HMOs: Properties with five or more tenants sharing facilities. These HMOs require a licence from the local council and must meet certain standards in terms of health and safety, fire safety, and other regulations.
• Large HMOs: Properties with three or more storeys and at least five tenants sharing facilities. These types of HMOs also require a licence from the local council and must meet additional regulations due to their size and complexity.

When choosing an HMO property, it is important to consider the type of HMO and its specific regulations to ensure that it meets your needs and is safe and legal to live in.

Legal Requirements for HMO Properties

HMO properties have specific legal requirements that landlords must comply with. These requirements are in place to ensure the safety and wellbeing of tenants and include:

• Annual gas safety certificate: Landlords must provide a gas safety certificate every year to ensure that the gas appliances and fittings in the property are safe to use.
• Electrical safety certificate every five years: Landlords must provide an electrical safety certificate every five years to ensure that the electrical installations in the property are safe to use.
• Fire safety precautions, such as smoke alarms and fire doors: Landlords must provide adequate fire safety measures in the property, including smoke alarms, fire doors, and fire extinguishers.
• Tenancy deposit protection: Landlords must protect the tenant’s deposit in a government-approved scheme to ensure that it is returned at the end of the tenancy.
• Health and safety compliance: Landlords must ensure that the property meets health and safety standards, including adequate ventilation, heating, and lighting.

It is important for tenants to be aware of these legal requirements and to ensure that their landlord is complying with them. If you have any concerns about the safety or condition of your HMO property, you should contact your local council or a housing charity for advice and support.

Financial Benefits of HMO Property Investment

Investing in an HMO property can bring several financial benefits to landlords compared to investing in traditional rental properties.

Let’s dive deeper into the financial benefits of investing in an HMO property:

Higher Rental Income

One of the significant benefits of investing in an HMO property is the potential for higher rental income. HMO properties generate more income than traditional rentals, as landlords can rent rooms in the same property to multiple tenants. This means that the landlord can earn more rental income from a single property than they would from a traditional rental property.

Moreover, the rental income from HMO properties tends to be more stable than traditional rental properties, as the income is spread across multiple tenants. This means that the landlord is less likely to experience a significant loss of income if one tenant leaves.

Diversification of Risk

Another financial benefit of investing in an HMO property is diversification of risk. With multiple tenants, landlords have a more diversified income stream and are less affected by vacancies or loss of income from one tenant. This means that the landlord is less likely to experience a significant loss of income if one tenant leaves or if there is a vacancy in the property.

Moreover, HMO properties tend to have a higher occupancy rate than traditional rental properties, which means that the landlord is less likely to experience a long-term vacancy. This can help to ensure a steady stream of rental income for the landlord.

Tax Advantages

Landlords investing in HMO properties can also benefit from tax advantages, such as offsetting mortgage interest, repairs, and maintenance against rental income. This means that the landlord can reduce their taxable income and pay less tax on their rental income.

Additionally, landlords can claim capital allowances for fixtures and fittings in the HMO property. This includes items such as furniture, carpets, and appliances. Capital allowances can help to reduce the landlord’s tax liability and increase their net rental income.

In conclusion, investing in an HMO property can bring several financial benefits to landlords, including higher rental income, diversification of risk, and tax advantages. These benefits make HMO properties an attractive investment option for landlords looking to maximize their rental income and minimize their risk.

Demand for HMO Properties

The demand for HMO properties continues to rise, making this type of property a smart investment choice. HMO stands for House in Multiple Occupation, and it is a property that is rented out to three or more people who are not from one household but share common facilities such as a kitchen or bathroom.

Investing in HMO properties has become increasingly popular in recent years due to the high demand for affordable housing solutions. HMO properties offer a unique opportunity for investors to generate higher rental yields than traditional buy-to-let properties.

Student Housing

One of the significant drivers of demand for HMO properties is student housing. Students form a significant portion of the rental market, and HMO properties offer affordable housing solutions to this demographic. Investing in HMO properties near universities and colleges can be a lucrative investment strategy.

Furthermore, HMO properties near universities and colleges tend to have a high occupancy rate, as students are always looking for affordable accommodation close to their place of study. Investing in HMO properties in areas with a high student population can provide a steady stream of rental income throughout the year.

Young Professionals

HMO properties provide affordable housing solutions to young professionals who are unable to afford properties on the open market. These properties also offer social connectivity and communal living, making them an attractive option for this demographic.

Young professionals are increasingly looking for affordable housing solutions that offer a sense of community and social connectivity. HMO properties provide communal living spaces, such as kitchens and living rooms, where tenants can socialize and build relationships with their housemates. This type of living arrangement is particularly attractive to young professionals who are new to a city and looking to make new friends.

Affordable Housing Solutions

HMO properties are also an attractive option for people seeking affordable housing solutions, such as immigrants, low-income earners, and people on housing benefits. These properties offer affordable rent and provide safe, decent, and well-maintained housing for vulnerable people.

Investing in HMO properties that cater to vulnerable people can be a socially responsible investment strategy. Providing safe and affordable housing solutions to vulnerable people can help to alleviate some of the housing problems that exist in society.

Furthermore, HMO properties that cater to vulnerable people tend to have a low vacancy rate, as there is always a demand for affordable housing solutions. Investing in HMO properties that cater to vulnerable people can provide a steady stream of rental income while also making a positive impact on society.

Managing an HMO Property

Investing in an HMO (House in Multiple Occupation) property can be a lucrative venture, but managing it can be challenging. HMO properties are rented to three or more tenants who are not from the same family and share facilities such as bathrooms and kitchens. Here are some tips on how to manage an HMO property effectively:

Tenant Selection Process

The tenant selection process is crucial when managing an HMO property. As a landlord, you must choose tenants who will be compatible with other tenants to avoid conflicts. You must also ensure that the tenants meet the legal requirements for an HMO property. For example, tenants must be over 18 years old, and you must have a license if your property has five or more tenants from two or more households.

It is also essential to have a thorough screening process for potential tenants. This process should include background checks, employment verification, and references from previous landlords. This way, you can ensure that you choose tenants who can pay their rent on time and take care of your property.

Maintenance and Repairs

Maintaining an HMO property is crucial to ensure tenant satisfaction and compliance with legal requirements. As a landlord, you must ensure that the property is safe, clean, and well-maintained. You must also ensure that the facilities, such as communal areas, bathrooms, and kitchens, are clean and in good condition.

Repairs must also be carried out promptly to avoid any disruption to tenants. For example, if a tenant reports a leaky faucet, you should fix it as soon as possible to prevent further damage to the property. You should also have a regular maintenance schedule to ensure that your property is in good condition.

Legal Compliance

Managing an HMO property requires compliance with legal requirements at all times. As a landlord, you must keep up to date with the ever-changing UK regulations and ensure that your property meets the required standards. Failure to comply with these regulations can result in fines, legal action, and even imprisonment.

Some of the legal requirements for HMO properties include fire safety, gas safety, and electrical safety. You must ensure that your property has smoke alarms, fire extinguishers, and fire doors. You must also have an annual gas safety check and electrical safety check.

In conclusion, managing an HMO property can be challenging, but with proper planning and management, it can be a profitable venture. By following these tips, you can ensure that your property is safe, well-maintained, and compliant with legal requirements.

Conclusion

Investing in HMO properties offers significant benefits to landlords who want to diversify their investment portfolios and maximize returns. HMO properties generate higher rental income, offer tax advantages, and diversify risk. Additionally, the demand for HMO properties continues to rise, making these properties an attractive investment option. However, managing an HMO property comes with its unique challenges, such as tenant selection, maintenance, and legal compliance. A well-managed HMO property can provide landlords with a stable income stream, making it a smart investment choice.

Specialist lender Shawbrook Bank has made its buy-to-let range simpler and reduced it to only three products – Single BTL, Complex BTL, and Large HMO.

Shawbrook had 10 BTL products and reduced the range in late 2019 to seven, and now it is down to three.

BTL has been created for property investors who want to borrow under £750k, while those looking to borrow more, or for portfolios and small HMOs, will fit into the Complex BTL product.

The final product, Large HMO, will target those looking to buy or refinance a house in multiple occupation (HMO) with 7 or more occupants.

Interest rates have been set accordingly to the new products, which now start from just 3.25%.

Moreover, Shawbrook has launched a new buy-to-let online application form available for all BTL and HMO applications that have received an Indicative Mortgage Offer. This should help to make the application process as fast and effortless as possible.

The online form will pull through the information that has already been provided by the broker at the initial stages, moving away the need to re-key this data when progressing the case.

With constant interruptions being commonplace in the busy day-to-day of a typical broker, an autosave feature has also been built in so the user can come back at a later stage without any information being lost.

Once finished, the broker will receive a PDF copy of the application for their records making for a much-improved experience.

Emma Cox, sales director – property division at Shawbrook Bank, said: “After hearing the positive feedback around our refresh late last year, we immediately looked to take another step towards further improving the broker and customer experience with Shawbrook.

“It’s crucial to ensure complete clarity for the broker community when it comes to one’s products, and we feel this simplification really ticks that box to make us even easier to do business with.

“With a digital application form now available to our brokers that has received glowing feedback so far, I’m delighted with the positive start we have made to 2020.”

New HMO regulations came into force in Wigan and Leigh. They will help the council manage the number of shared houses in areas.

From now on landlords and developers will be required planning permission to convert properties into houses in multiple occupation (HMOs).

The policy will be enforced in Swinley and central Leigh after residents’ complaints about the rising number of HMOs in those areas.

Following a cabinet decision in July, the formal adoption of an “article 4 direction” now means HMOs of any size, whether big or small, will be considered through the planning system.

Coun Paul Prescott, cabinet member for planning, environment and transport said: “Listening to feedback and concerns of local residents is extremely important to shaping communities and a borough people can be proud of.

“Historically, we have only been able to manage larger size HMOs, however, this new direction will give us more opportunities to manage the development and quality of HMOs in the two areas where they are most prevalent.

“Since cabinet approved this move, we have consulted with residents and are happy to say that the response has been very positive and the direction has been welcomed.”

There are currently 105 known HMOs in the borough and the biggest concentrations are in Swinley and central Leigh with 30 and 24.

Coun Prescott added: “We appreciate that HMOs provide a form of low-cost, flexible housing, particularly for younger people and those on lower incomes, but there are concerns associated when the number of HMOs is increasing in a concentrated area.

“Such concerns include the impact on parking provision, excess noise, impact on the physical environment and changes to the character of a residential area.

“To ensure that future planning applications for HMOs provide quality accommodation, whilst mitigating the impact on existing residents, a supplementary planning document is also due to be created to aid developers and landlords, providing clear guidance on appropriate HMO accommodation standards. We will be offering the opportunity for interested parties to comment on this document at the appropriate time.

“The new approach to HMOs in these two areas, along with the launch of Wigan Council’s Ethical Lettings Agency, will ensure that we can work closely with housing colleagues and the private rented sector to ensure quality, affordable homes for all.”

Scarborough Council has approved the application for the conversion of a guesthouse into a House of Multiple Occupancy (HMO).

M C Ventures Ltd applied to the local council to get the change of use for 136 North Marine Road to allow it to be used for 8 occupants.

The council’s planning committee was asked to make the decision as it would be the fourth HMO within a 100-metre radius, which goes against council policy.

However, the councilors were told that one of the HMOs was right on the 100-meter boundary and if the application property was at 134 rather than 136 then there would be no questions.

Several members of the public objected to the change of use, with some of them concerned about the loss of holiday accommodation in a tourist area.

However, the report prepared for the council was saying that the property had not been holiday accommodation for a number of years.

It added:

“The applicant’s agent has confirmed that the applicant purchased the property in July 2018 on the understanding that the property was already in an HMO use, having been a home for adults with learning disabilities since 2015.

Prior to this, the guesthouse had been used as temporary accommodation for homeless persons, since 2009.”

At the end of the meeting, the change of use was approved by the committee.

Before investing in HMO, take the time to look at the rental operating costs of property investment. Checking the operating costs of an HMO helps investors to recognise all of the costs related to a property investment deal. And this is especially essential as operating costs can make or break a deal. 

Common Operating Costs for Your HMO

Insurance

Buildings insurance is necessary to protect your occupants and property investment. If your HMO is furnished or you have other items in the property, you’ll likely want to also get contents insurance. The cost of buildings and contents insurance varies widely; however, it depends on the value of the property.

Void periods

As an HMO property investor, you will probably face a void period at some point, and it’s important to be financially prepared for this. We recommend planning an estimated two to three weeks of unrented periods per year, which amounts to around 5% of the total yearly rental revenue.

Maintenance

Maintenance costs cover any renovations, repairs or replacements that need to be made in the property, such as fixing a boiler or leaks. On average, 2% to 5% of the annual rental income can be estimated to cover HMO maintenance for a year.

Management

Management services can help you run your HMOs with fewer troubles. You decide whether you want to use a management company or not. The market rate for a specialist agency to fully run and manage an HMO typically ranges from 10% to 15% of the gross rental income.

Additional Operating Costs:

Utility bills

Utility bills include water, electricity, and gas. Estimated utility costs will need to be based on the number of HMO occupants.

Internet & TV license

In 21 century, HMO tenants are willing to have high-speed Internet and a TV license to be included in the rental price. Currently, high-speed broadband is estimated to cost £360 per year, while the cost of a yearly TV license fee is £155.

Council tax

Council tax is another operating cost to consider. Visit MyCouncilTax.org.uk to find an estimate of how much council tax you would owe for your HMO property.

Cleaning

To find out the cost of cleaning an HMO investment, multiply the cleaning requirement by the cost of cleaning per hour. Housekeeping is typically provided with serviced accommodation and cleaning is necessary before a new tenant arrives, which can be an essential cost for this type of investment.

The application to convert Gervis Court hotel into a 17-bed house in multiple occupation (HMO) was submitted in Bournemouth.

A statement submitted on its behalf to BCP Council says the proposal is following a separate application submitted last year to convert the building into 19 flats.

The latest plans, if approved, would allow the former hotel to be converted into an HMO.

The future of the hotel as a business was considered by the Bournemouth tourism accommodation screening panel in 2018.

It found an investment of £285,000 was needed for it to create “reasonable” income for its owners but it said the money would be better invested in a high street bank savings account.

“In order to create a business that could return the owners a reasonable wage the property would need to be comprehensively refurbished,” it said.

“Clearly there is a risk that the costs of the works will overrun and the business will not perform at the level anticipated.

“Even if the forecast targets were met, the return on investment is de minimis.”

The request for permission to use the building as an HMO is coming after the submission of plans to convert it into 19 flats which were submitted in September.

A decision on the scheme will have to be made by the council’s planning committee after the application was “called in” by Hazel Allen, the Bournemouth town centre councilor.

She claimed the proposals were “unsympathetic” and could destroy many of the more historic elements of the 1860s-built structure.

Low house prices and high demand for good quality accommodation makes Sheffield a highly attractive city for property investors.

The University of Sheffield, Sheffield Hallam University, Royal Hallamshire & Northern General Hospitals attract young people from different parts of the UK and all over the world who come to Sheffield to study and start their life careers.

It is assumed that there are currently in excess of 50,000 students studying in Sheffield, many of whom live in non-university owned accommodation. This makes pressure on private housing raising concerns relating to the effects of concentrations of student housing on communities. Those issues include areas with anti-social behaviour, parking problems, poor management of housing stock, the balance of communities and the loss of population outside term time.

Local Councils around the UK decided to manage the pressure points in selected areas with the use of Article 4 Directions.

What is Article 4?

Article 4 Directions are the legal means by which a local authority can require property owners to seek permission to convert a single dwelling house into a small HMO.

The idea is that by doing this the councils are given more control over housing stock through their ability to control the density of HMOs in a given area and also, in the case of conservation areas, this allows councils to consider the impact any development might have on the character of that area (not just HMO’s)

What Does This Mean for Sheffield’s Residents?

Landlords who have properties within the Article 4 area and want to use them for Houses in Multiple Occupation (Class C4) need to apply for planning permission to do so. This means that the impact of new shared housing in areas where there are already high concentrations can be controlled now.

The main purpose of the Article 4 Direction is to ensure that where opportunities arise, development can be prevented (through control of planning permission), which might contribute to communities becoming unsustainable as a result of a concentration of HMOs.

Department for Communities and Local Government Circular 08/2010 highlights that “a high concentration of shared homes can sometimes cause problems, especially if too many properties in one area are let to short term tenants with little stake in the local community”. This is why legislation has been put in place to allow local authorities to control high concentrations of HMOs where there it’s necessary.

A lack of parking space on old Wolverton street was not a strong enough reason on its own to block a five-bed HMO, councillors decided.

Committee members agreed, with Councillor Paul Alexander saying “it’s going to cause a major problem.”

But the committee’s officers said even though the parking spaces could not actually be provided on the site, rejecting it for that reason would be on shaky ground.

Senior planning officer, Richard Edgington, said: “Would that stand up at appeal?”

And committee chairman Councillor John Bint said: “We would probably be arguing over one-fifth of a space.”

MK Council’s parking policies say that a 5-bedroom HMO would need half a space per bedroom, making 2.5 spaces in total.

Even though the only parking outside the property, which is above the Post Office, is daytime one-hour parking, because the property is already there, it is assumed to comply with policies.

Councillor Bint said: “There is a parking problem, and it is a pre-existing problem, and so not a reason for refusing this. As a reason for refusal, parking is less likely to stand up at appeal.”

But council officers made a case for refusing that an existing issue with refuse storage would be much worse if the change was allowed.

“Due to this lack of storage,” said Mr Edgington in his report, “there is an increased likelihood that the storage of waste may spill out onto the street, thereby having implications on the character and appearance of the street scene, and the amenity of adjacent occupiers.”

The application hasn’t been approved yet.