Are you considering investing in an HMO property in 2024? Do you want to understand the rules and challenges that come with being an HMO landlord? In this comprehensive guide, we'll walk you through everything you need to know about investing in HMO properties in 2024.
What Exactly is an HMO Property?
HMO stands for House in Multiple Occupation or House for Multiple Occupation. It refers to shared accommodation, often known as "co-living." HMOs are popular among students and young workers looking to rent a room in a shared house or flat. They usually offer inclusive bills or capped bills and are commonly found in towns and cities.
What is the Legal Definition of an HMO Property?
According to Section 254 of the Housing Act 2004, a property qualifies as an HMO if three or more renters from different households live there and share one or more basic amenities. If there are 3-4 renters, it's considered a small HMO, while 5+ renters classify it as a large HMO. A small HMO typically includes sharers who have their own bedrooms, while a large HMO involves sharing toilet, bathroom, or kitchen facilities with other renters.
What are "Basic Amenities"?
Basic amenities, as defined in Section 254(6), refer to toilet, bathroom, or cooking facilities (i.e., a kitchen). However, self-contained flats within a building are not considered HMOs unless they fall under Section 257, which means they don't share basic amenities with other renters in the building.
What is a "Household" for the Purposes of an HMO Property?
A household includes members of the same family, including couples. Section 258 provides a broad definition of a household, which encompasses all types of couples, blended or extended families, and even relatives such as cousins and nieces/nephews. For example, a small HMO can include 3 single people or 2 couples sharing a bathroom or kitchen. If a partner of one of the sharers moves in, it becomes a small HMO.
How Will the Renters Reform Bill Affect HMO Properties in 2024?
The Renters Reform Bill is expected to impact HMOs in a similar way to single lets. However, there are some amendments that will specifically affect HMOs. These include a new mandatory ground, called Ground 4A, for possession of student HMOs, which allows landlords to serve notice for possession between June and September. Additionally, there are revisions to the anti-social behavior ground and changes to rent repayment orders.
When Does an HMO Property Need a License?
Not all HMOs require a license. There are three different types of licenses for HMOs in England:
1. Mandatory Licensing
All large HMOs with five or more renters from at least two households, sharing basic amenities, must have a mandatory license. Failure to obtain a license can result in civil penalties, rent repayment orders, and eviction restrictions.
2. Additional Licensing
Local authorities have the power to implement additional licensing schemes for small HMOs that are not covered by mandatory licensing. The decision to introduce additional licensing depends on the effective management of HMOs in the area and the potential impact on local residents or the public.
3. Selective Licensing
Selective licensing schemes apply to all private rented properties within a defined area, not just HMOs. They are implemented by local authorities to address concerns regarding the management of rented properties.
What is Article 4 When it Comes to HMO Properties?
Article 4 Directions allow local planning authorities to require property owners in specific areas to obtain planning permission when converting single homes (C3 use) into HMOs (C4 use). Planning permission is only necessary for new conversions in areas subject to Article 4.
What are Average HMO Room Rents in Late 2023?
According to SpareRoom's Q3 2023 data, the average rent for an HMO room in the UK (excluding London) is £630 per month, while in London, it increases to £971 per room. These figures represent a significant increase compared to the previous year. It's important to note that HMO rents usually include bills and furnishings, which should be considered when comparing returns to single lets.
How Do HMO Room Rents Compare to Single Lets in Late 2023?
On average, rents per property are higher for HMOs than for single lets. HMO room rents are also increasing at a faster rate than those of single lets. However, HMO rents typically include bills and furnishings, which contribute to the higher cost.
Tips on How to Manage an HMO Property
Managing an HMO property can be challenging, given the continuous turnover of renters and the specific regulations that apply. It is possible to self-manage HMOs, but it requires exceptional organization skills and a thorough understanding of your responsibilities as a landlord. Many landlords choose to enlist the help of letting agents or property virtual assistants to handle the management tasks effectively. Implementing electronic tenant management systems can streamline communication and improve efficiency.
How to Manage Bills if You're an HMO Landlord
HMO landlords have the option to include bills in the rent or have renters manage their own bills. Inclusive bills are popular among renters, especially in larger HMOs. Utility management services and smart meters can simplify the billing process and eliminate the need for manual readings.
Changes to the Council Tax Valuation of HMO Properties
The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023 clarify that HMOs should be valued as a single property for council tax purposes. This means that HMOs will receive one council tax band and one bill, except for self-contained flats covered by Section 257.
Final Thoughts on HMOs
HMO properties can offer landlords excellent returns on their investments. However, they come with greater regulation, management demands, and complexity compared to single lets. It's crucial for landlords to stay organized and up-to-date with their legal responsibilities. Whether self-managing or seeking professional assistance, landlords should ensure they understand the unique challenges and requirements of managing HMO properties.
