Your Business and Industry
HMOs Did you know – 10 facts about HMOs
As experts in HMOs large and small, we share 10 top facts about their use and licencing to help inform your conversations with your landlord clients.
- What is an HMO?
Currently, a house in multiple occupation (HMO) is defined as a property rented out by at least 3 people who are not from 1 ‘household’ (such as a family) but sharing facilities like the bathroom and kitchen. An HMO is also referred to as ‘house share’. The HMO may also be subject to other licences.
- How do we value HMOs at Foundation Home Loans?
For HMOs typically up to and including 6 bedrooms, Foundation Home Loans will instruct what we call a standard bricks and mortar valuation to determine the best rent by room – i.e. based on the transactions of other HMOs and private dwellings of a similar size in the local area. If we are valuing a larger HMO, typically 7 bedrooms and above, we would instruct a commercial valuation where the customer would obtain an investment yield too, this type of valuation is usually preferable for larger properties due to there often not being enough comparable properties within the vicinity.
- Are there room size restrictions on HMOs?
Yes, so take care that all of the bedrooms your client rents out as bedrooms actually qualify as part of the mortgage valuation. Since October 2018, the government rules on minimum usable floor space to qualify as an acceptable bedroom is:
- 6.51 square metres for single adult occupancy dwellings
- 10.22 square metres for double occupancy dwellings
It’s worth noting that some local councils may have minimum size requirements above those set out in the housing act. You may find these sites useful: Foxtons | Design Buildings
- When does an HMO property need a licence?
Prior to October 2018, an HMO only needed a mandatory licence if it had five or more tenants from more than 2 households and the property was over 3 floors.
Since the new licencing change came in to effect, the 3-floor rule has been taken away, meaning that a lot of properties which simply have five or more tenants from more than 2 households didn’t previously need a licence before, now do. See the government rules.
- What are the different licences?
There are 3 different licences that HMOs can be subject to:
- Mandatory HMO licencing is for ‘Large HMOs’, which are properties with 5 or more people from 1 or more households, and there are shared share toilet, bathroom or kitchen facilities, and at least 1 tenant pays rent (or their employer pays it for them)
- Additional HMO licencing is for those properties which do not fall under needing a mandatory licence but the local council still insists on those landlords/properties being subject to one, this may be due to a high concentration of HMO’s in the area for example.
- Selective licencing isn’t HMO specific and is applicable to all rented properties in certain areas and regions. It is always worth checking the local council site of any property, in particular, HMOs to ensure that it is done correctly. Apply for an HMO licence through gov.uk
- Can HMO bedrooms have en-suites?
We can consider bedrooms that have en-suites as part of its set up, but typically won’t accept a property that would be made up of bedsits. If the property does have any such quirks, it’s always best to speak to your regional account manager to discuss the case before it comes in.
- What communal space is required for you to accept an HMO?
RICS guidance states that there must be a communal living space within a HMO. This could be a shared living room or kitchen/diner, for example. If you would like to check any quirky set-ups with us beforehand, do get in touch with your regional account manager,
Why do brokers use foundation for specialist properties?
- Does my client need an HMO licence in place at point of application?
For both remortgages and purchases, we would want the property to already be used as an HMO, and we would then condition for the licence to be in place at completion.
- If my client is buying an existing HMO, can the vendor transfer the licence?
No, licences are subject to both landlord and property; a new owner would need to apply for a new licence. You can check on the local authority website if a licence and what one is required.
- What happens if a landlord didn’t have a licence in place?
Landlords who do not comply with licencing guideline or fail to obtain one could be prosecuted and be subject to an unlimited fine, additional fee of up to £30,000 and rent repayment orders, where 12 months of rent could be repaid back to tenants.
How can Foundation home loans support me with HMO cases?
As a specialist lender, we see ourselves as specialists in the HMO space; our flexible underwriting and common-sense approach means that we can look at some of the quirkier property set-ups.
Some of the flexible criteria that we can apply to HMO cases is: Up to 8 bedrooms as standard, more by exception. First time landlords are considered, Student lets considered, it can be owned in personal or limited company structures – and we have a flexible approach to shareholding structures within limited companies. We can consider day 1 remortgages if a green product is selected.
Finally, HMO clients should always seek professional legal advice on their own status and the status of the property.
If you would like to discuss how we may be able to help one of your clients, the direct dial for your Regional Area Manager is here.
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