Houses in multiple occupation (HMOs) have increased in popularity among property investors in recent years, so it is more important than ever to be aware of how HMO licence laws apply to you.

Like any Property investment option, investing in an HMO comes with a range of pros and cons. Whether it is the right choice for you will depend on your investment goals, how hands-on you want to be and your financial situation, among other factors.

Some prospective landlords may baulk at the idea of the Hmo Licence scheme, as the rules vary from location to location and by property size, with councils introducing new schemes to their areas on a fairly regular basis.

Running a rental HMO without the correct HMO Licence can lead to court action and fines, as some landlords have recently discovered. Most recently, the largest fine issued was a hefty £23,000 to a landlord in Reading. The maximum penalty is £30,000 for a breach of licensing rules.

Meanwhile, another HMO landlord was also in the news last week after receiving a fine for more than £3,500 for operating a property without an HMO licence in Cambridge for more than two years.

Do I need an HMO licence?

A property is classed as an HMO if it houses at least three people from more than one household – with separate tenancy agreements – with shared facilities such as a bathroom and kitchen. It can also be known as a ‘house share’, and separate tenants can come and go without affecting the tenancies of others.

Whether you need an HMO licence for this type of property will depend on where it is located, and the best way to find out what rules apply in your area is to contact the local council. Many areas have ‘selective licensing‘ in place, so HMOs of any size need a licence to operate in these locations.

If you own a ‘large HMO’, which is a property rented to five or more people who form more than one household, with shared toilet, bathroom or kitchen facilities, you must have an HMO licence for that property, regardless of location.

Licences are valid for a maximum of five years, and you must have a separate licence for each eligible HMO that you own. There are other regulations that apply specifically to HMOs, and you can find out more about that on the government’s website.

Is it worth it?

HMOs are one of the highest-yielding property types an investor can own, which is a huge draw for many buyers. Part of the reason for this is that, due to the separate tenancies, void periods when you are not receiving rent are minimised.

The latest research from BVA BDRC Landlord Panel in Q4 2022 found that average yields were 6.4% for this property type, which is above-average compared with traditional buy-to-lets.

In terms of tenant type, they tend to appeal to young professionals who want to live in or close to city centres, as they can be more cost-effective for the tenant than paying to rent out a whole property. They also appeal to those who are moving to a new area, as they can be a good way to meet people.

While anyone can operate an HMO, they tend to attract more experienced landlords with enough time on their hands and expertise to deal with the added complexities that can be involved. There are more regulations to be aware of linked to the property type, as well as potentially more maintenance.

Either way, it is important to stay on top of any HMO licence schemes – either in operation or set to come into effect – in your area, to avoid any hefty fines.

BuyAssocation offers highly lucrative opportunities in HMO property investment as part of our ever-evolving portfolio and partnerships with leading developers. Get in touch with our consultants to discuss your investment goals and identify HMO investments.