A Useful Guide For Landlords & HMO Regulations, And Important Tips About HMO Insurance
This article covers the basic aspects of HMO Regulations, and HMO Insurance.
The definition of a House in Multiple Occupation (HMO) can be confusing. An HMO property is one that is shared by a minimum of three tenants who create in excess of one household but who all share either a bathroom, toilet or kitchen. Examples of this could be an investment property that has been appropriately converted into bedsits or a halls of residence for student occupation.
The main appeal to a landlord of letting out their investment property as an HMO is the opportunity to achieve an excellent return with the rental income from such a venture potentially achieving two to three times more than for a single household.
However, with the possible high returns come a number of extra considerations and risks that you must be aware of.
So, in order to help you make a balanced decision, below are the top 5 things to consider before deciding whether letting out your investment property as an HMO is appropriate.
1) Large turnover of tenants
Tenants residing in HMOs tend to stay for a short period of time in comparison with a family renting a property. The problem with this is that a landlord will be faced with frequently having to find new occupants and going through the administration process on a regular basis. For instance, references will need to be obtained and a detailed record must be kept of who is living in the property. This may seem simple but when you are dealing with the likes of migrant workers it is not always easy to keep on top of the paperwork. You will need to ensure that each tenant has signed a specific HMO contract and you will need to keep the local authority up to date with the names of the tenants.
2) High property maintenance
Unfortunately, a tenant in an HMO property has a reputation for not maintaining the property in a reasonable state whilst residing there when compared with a family or professional couple. This may be due to the fact that he or she may not be staying in the property for long and therefore can’t be bothered to look after it.
As a result, you may need to arrange for the property to be cleaned and decorated more frequently thus adding to your maintenance costs. Also, an HMO tenant is less likely to notify you of any problems they spot whilst living in the property such as a leaking tap, cracks or dampness in the walls. Therefore, as the onus is on you to make sure that the property is well kept and does not present any danger to the tenant, you would be advised to make frequent visits to the property or pay a letting agent to make sure there are no such issues. Ultimately, if something untoward happens with the property it is the landlord’s responsibility.
3) Strict health and safety regulations
If you wish to convert your investment property to allow HMO tenants you need to be aware that there are specific health, safety, fire, planning, environmental and building regulations to be complied with over and above those for letting out a conventional rental property. For instance, the internal layout must comply with certain standards, the fire escapes, passageways and stairwells must be free of obstruction and the property must be kept in a habitable state and well maintained at all times including the regular checking of fire extinguishers.
If the property is presently being let to a family but you wish to let it out on a room by room basis to 3 to 6 tenants planning permission will be required costing several hundred pounds.
You may need to have additional work undertaken in the property such as the installation of fire doors. Therefore, the initial investment in a HMO property is likely to be greater than for that in a standard let property.
Failing to meet the standards may result in serious consequences. Recently, a landlord was fined £20,000 for not complying with fire safety regulations so it is vital that you familiarise yourself with all regulations.
Landlords are advised by the Association of Residential Letting Agents (ARLA) to liaise with the local authority or, alternatively, a licensed ARLA officer prior to buying a HMO investment property or converting a property for occupation by HMO tenants for guidance.
You should also ensure that you have appropriate landlords insurance in place to cover you for any mishaps within or to the property.
4) HMO licence
Following the recent introduction of certain legislation, a landlord who is deemed to own a “high risk” larger HMO property must obtain a license to ensure that the property is satisfactory for multi-party occupancy, that the management standards are acceptable and that the landlord is “fit and proper”. This license is only applicable in certain cases so you should contact the local council who will guide and advice you appropriately. If you were to let out an HMO property without such a license and you should have had one you may face penalties of anything up to £25,000.
You should be aware that a number of insurance companies will not provide HMO insurance when a property is let out to HMO tenants due to the perceived extra risk so you will need to contact someone like Lockyers who are one of a limited number of insurance brokers providing HMO insurance cover for HMO tenanted properties. They can also arrange cover for when the property is unoccupied and paying out in the event of rent defaults that may prove beneficial risks to be covered for in the case of HMO tenants. You should ensure that your insurer is kept fully informed about the type of tenants occupying the property and any changes so that you do not risk invalidating the insurance cover.
Although letting out your property to HMO tenants could provide you with a significant return on your investment you should only enter this market place with your eyes fully open.