A HMO is a House in Multiple Occupation. It’s where tenants rent a room within a house and share certain facilities such as the kitchen, living room and bathrooms. It is where there are 3 or more unrelated tenants from 2 or more households. 3 bedroom HMOs are uncommon but there are a few. Many HMOs are 4 to 6 beds with a large portion of them being 6 beds.
Any HMO with 5 bedrooms or more requires an HMO Licence which must be applied for through the council. If you have 7 tenants or more within the HMO (which means if you have a 6 bedroom HMO and have a couple in one of the rooms) then you must obtain planning permission from the Council.
There are restrictions in place that limit the creation of HMOs. Over the last 10 years, HMOs have become an attractive investment for landlords and therefore some cities have seen over supply of HMOs in certain areas. To restrict the number of HMOs, some Councils have introduced Article 4 which means that HMOs can’t be created without first obtain planning permission.
Landlords decide to create and rent HMOs because the yields are significantly higher than standard BTLs and commercial property yields. However, it is very important to understand the type of HMO you are buying, who the tenant type is, what the average bills will be, the condition of the HMO, the configuration of the property with communal space and bathrooms, and it’s location as many of these factors will impact on rent prices and void periods which will significantly vary the yields.
Tenants range from students, to young professionals, to tenants on housing benefits, to some older tenants who are going through a change in circumstances like a relationship breakup. House Shares are common for students as it is a cheaper alternative to renting a flat and having to pay utility bills on top.
For tenants, the benefit of an HMO is it provides a convenient option to rent something whilst not knowing where in life they may go, such as with their career, their personal relationships and which city they may live in. 74% of young professionals coming out of University rent an HMO room because of these reasons, with a large percentage of 21 to 30 year olds renting HMO rooms.
Another very pertinent reason why HMOs are important to young people is the affordability. For young professionals whose earnings (in the North) range from £16k to £24k a year, an HMO room at £400 per month including all bills is much more cost effective than a flat at £600 per month plus another £200 a month in bills on top. Many tenants also relish the opportunity to meet new people in house shares, particularly if they are moving city for a new job and haven’t got an established friendship circle.
Rents can range from £50 per week for local authority (housing benefits), to £550 per month for ensuite rooms in the North, and some rooms in London up to £1100 per month for an ensuite room.
Bills are normally included within the cost of the monthly rent, but this rule can change depending on the location where sometimes it’s more common for rent to be exclusive of bills.