Converting a property into a HMO
As landlords have had to deal with increased regulation and financial setbacks in recent years, such as Section 24 and the 3% stamp duty surcharge, many have looked for ways to maximise the potential of their portfolios.
Alongside incorporation, one of the most popular strategies has been to convert rental properties into HMOs to benefit from higher yields and rental returns.
If you're considering converting a property into an HMO, there are several things you'll need to do, from meeting legal requirements to making the property habitable for more people.
What are the first steps?
What is an HMO?
HMO stands for a House in Multiple Occupation and can be a building, bedsit, hostel, or flat that is rented out by more than one household. This includes families or more than two tenants who share an amenity, such as a bathroom, toilet, or kitchen.
HMO housing is typically characterised by four features:
• It is the main or only residence of the occupants
• Three or more tenants reside there
• Residents do not form a single household
• The tenants pay rent
Certain properties and locations are tailor-made for HMOs. For example, a busy student area with large, extendable properties.
Why convert into an HMO?
Many landlords let HMOs as they consider them a more efficient way to run a rental portfolio and provide increased revenue. The opportunity to collect rent from a higher number of tenants and a potentially higher rental yield is appealing.
There is also more security for the landlord as they aren't dependent on one household for income. If one tenant moves out or falls behind on payments, the landlord will still have rent coming in from the remaining tenants.
HMO services can be profitable for both tenants and landlords. When it comes to tenants, HMOs are sometimes preferred due to potentially lower rent payments and the opportunity to live with more people.
Does your property need to be converted to an HMO?
If your property is not HMO-ready, you may need to make adjustments to make it suitable for tenants. As well as your compliance obligations outlined above, the key things you’ll need to consider are space, layout, facilities, furniture, and appliances.
If you convert your property into an HMO, it will be visited by your local authority within five years. They will carry out a Housing Health and Safety Rating System (HHSRS) risk assessment to identify any issues. It’s worth noting, however, that the HHSRS guidelines have changed since 2019.
If any unacceptable risks such as asbestos and radiation, are found during the assessment, you will need to address them immediately.
HMO Room conversions
You’ll likely be converting the use of some rooms, and you may also need to move or construct walls to alter room sizes. It's also advisable to use a professional when working on the more significant parts of the HMO conversion and determine whether you need planning permission for any major renovations.
Converting the garage into additional living space is another popular conversion option for HMO landlords. This will likely need planning permission, so you’ll need to check with your local council before undertaking any work. In many cases, traditional Victorian terraced houses and similar properties are ideal for HMO conversion. This is due to their spaciousness and the size of the reception rooms.
Converting reception rooms is common and often essential, but not always the right decision. Some renters might be put off properties with no living room or reception space, so it's something you'll need to consider carefully.
Depending on the property, converting it into an HMO will be expensive and take some time, so you'll need to budget properly.
Five quick HMO renovation tips
- Use outdoor space – Outdoor space is equally as important as the interior if you want your HMO to appeal to long-term tenants who are looking for a home. Seating and BBQ areas are likely to be popular with the modern renter.
- Prioritise kitchens and bathrooms – These rooms could be the dealbreaker when it comes to renters choosing your property. Tenants' expectations are likely to be high, so make sure you furnish to a high standard and add some nice touches.
- Don't skimp on important appliances – While you'll want to keep costs down as much as possible, there is no point in being cheap when it comes to important features such as fridges, sofas, and beds. This approach will only end up costing you more in the long term.
- Be ready to let – Tenants don't want to be moving into a building site, and you must have everything finished before they move in to reduce the chances of damage or problems early in the tenancy.
Is an HMO Licence needed?
One of the most important legal aspects of letting an HMO is getting the relevant licence in place. The rules surrounding HMO licensing were updated in October 2018 and were expected to affect up to 177,000 additional properties at the time.
If your property is let to five or more tenants from more than one household and some basic amenities are shared, then your property will need an HMO licence. If some, but not all, of these criteria, apply, then you may still need a licence, and it's wise to check with your local authority.
HMO licences are valid for five years at a time, and you'll require a separate licence for each HMO you’re running.
HMO Rules & Requirements
To let a compliant HMO, there are specific rules that the landlord must adhere to and compliance measures you need to meet to secure your HMO licence and ensure the safety of tenants. These include:
HMO Safety & Smoke Alarms
The landlord must send a valid gas safety certificate to your local authority each year, install the relevant smoke alarms and carbon monoxide detectors, and have safety certificates for electrical appliances available on request.
HMO Minimum Room Sizes
At the same time as the licensing changes, guidelines for HMO minimum room sizes were also introduced, with landlords needing to adhere to the guidelines.
The 2018 regulations state that landlords are obligated to ensure the floor area of any sleeping accommodation in HMO houses used by one person over 10 years is not less than 6.51 square metres and 4.64 square metres for one person under 10 years.
There are also new rules on overcrowding for landlords to comply with. These include making sure that any room in an HMO used as sleeping accommodation is not used as such by more than the maximum number of persons specified in the HMO licence.
Rules on HMO minimum room sizes and overcrowding vary depending on the number of occupants and age, so it's worth double-checking that the requirements are met.
HMO safety requirements
Alongside HMO fire regulations, you'll need to ensure that all gas appliances are maintained, with a Gas Safe registered engineer carrying out a gas safety check each year. All electrical installations and appliances you provide must be safe to use, while any furniture and furnishing you provide must meet fire-resistance regulations.
An Electrical Installation Condition Report (EICR) and test certificates for your electrical appliances will also be needed. You'll also need to install fire doors, keep all exits clear and make sure that tenants know not to obstruct them and know what to do in the event of a fire.
Some other safety requirements you’ll need to consider when preparing your HMO to let could include:
- Locks for each bedroom
- Emergency lighting
- Keeping pest control treatment records
The safety requirements for HMOs are extensive and are likely to differ depending on your local authority, so it's always best to check with them first.
HMO guidelines for Landlords
Fitness for human habitation
Another piece of legislation landlords need to comply with is the Homes (Fitness for Human Habitation) Act 2018. The legislation means all HMOs must be suitable for human habitation at the start of the tenancy and throughout. It also provides tenants with greater powers to hold their landlord to account if their property is substandard.
To ensure your HMO buildings are fit for human habitation, there is a range of potential issues you’ll need to avoid. These include:
- water supply
What's more, if the property contains any of the 29 hazards outlined in the HHSRS regulations, it's likely to be deemed unfit for human habitation by the courts.
Another crucial piece of HMO advice for landlords is that, due to the nature of having more tenants, HMO buildings are likely to come under more stress over the course of a tenancy. Bathrooms, kitchens, floors, and doors will all take a lot more wear, so you must ensure you're prepared to respond to all reasonable repair requests with speed and efficiency.
Be sure to check that your landlord insurance policy, if you have one, is suitable for an HMO – as not all landlord insurance policies cover a house with multiple occupancies.
Buy-to-let mortgage terms for HMOs
When preparing to let an HMO, you’ll need to check your buy-to-let mortgage terms. Not all agreements allow properties to be let as HMOs, so check your terms and conditions.
If you’re unsure about something, check in with your lender or speak to a buy-to-let mortgage broker. Your agreement may allow you to get started immediately, or you may need to arrange a different type of mortgage.
HMO landlord insurance costs
Your HMO insurance premium depends on various factors, including the level of protection you're after and when you'd like your coverage to start. Every landlord's situation is different, so there's no 'one-size-fits-all' solution, and you need to consider what you'd like covered – from unexpected loss of rental income to costs of alternative accommodation should your HMO become uninhabitable.
HomeLet offers options, including building and contents insurance, legal expenses, and accidental damage. Get a quote today or speak to one of our expert team to receive landlord insurance HMO advice.
Why choose HomeLet for your landlord HMO insurance?
When it comes to HMO insurance, you want someone you can trust. We've been in the industry for 20 years, and we're dedicated to responding to our landlords' every insurance need. We currently provide cover for over 30,000 landlords, so you can be confident that you're safe.
Cover for your HMO buildings can begin when you like or as much as 45 days ahead of the policy start date. We also understand that things go wrong so we offer free cancellation within 14 days and if no claims have been made, then the remainder of your annual premium is refunded.
If you have any further questions about HMO insurance and starting up your HMO, contact us at 0800 035 8258 or use our Emergency Assistance Insurance helpline.
HMOs - further reading:
The links below explain the Government’s HMO requirements and how you can apply for a licence for your property:
Meanwhile, you can find additional HMO hints and tips here: