HMOs are equally popular among landlords, investors and tenants. But what makes a house an HMO?

hmoHMOs – Housing for Everyone!

The UK economy and world over, for that matter – has experienced quite a few ups and downs in the last decade. The post-2008 housing crises posted a more serious question that needed urgent answering – Is affordable housing really affordable?
The traditional concept of ‘house sharing’ was seen by many as the answer to this question, and rightly so.

What is an HMO?

A ‘House in Multiple Occupation’ (HMO) has been defined by the Housing Act (2004) as any house in which:

  • Three or more unrelated persons reside, thereby accounting for more than a single ‘household’, and
  • Communal facilities like living room, kitchen and/or bathrooms are shared by the residents

Thus, it is clear that for a property to be designated as an HMO, it must house more than three unrelated persons. This definition is an improvement upon Housing Acts of the past, bringing more and more rented accommodation under the HMO umbrella and as such falling under the relevant rules, regulations, codes and acts.
Here’s how you can decide whether your property houses more than one household:

  • A ‘household’ is defined as the residence of one family (one or more members of the same family living together).
  • A ‘family’ is defined as kin of blood (parents, siblings and children), half-relatives or relatives (grandparents, uncles, aunts etc.), partners (married or living together) etc.

What is a ‘Large HMO’ and a ‘Small HMO’?

While dealing with various HMO codes, an important distinction has been made so that smaller HMO operators don’t have to face unnecessary hassles. This distinction tries to separate HMOs into two broad categories – Large HMOs and Small HMOs.

Large HMOs

An HMO is deemed to be a ‘Large HMO’ if:

  • It houses more than 5 unrelated tenants accounting for more than one household,
  • It has three or more storeys,
  • Tenants share communal facilities.

Typical examples of Large HMOs include:

  • Student halls
  • Dormitories
  • Lodging houses
Small HMOs

On the other hand, an HMO is deemed to be a ‘Small HMO’ if:

  • It houses 3 to 5 unrelated tenants forming more than one household,
  • It has no more than 2 storeys.

Typical examples of Small HMOs include:

  • Shared flats
  • Converted bedsits
  • Converted B&Bs
  • Shared houses with one or more ASTs

What Makes HMOs Attractive?

HMOs are among the most popular commercial housing properties in the UK today. Here are some of the reasons that make HMOs so appealing to both landlords and property investors:

  • HMOs are relatively easier to plan and develop.
  • Most houses can be converted into commercial HMOs without much re-planning.
  • HMOs are easier to rent out.
  • HMOs provide a lower risk profile to Landlords in terms of unpaid rents and being able to cover the monthly finance costs.
  • HMOs provide cheaper housing options for tenants and so have huge tenant demand.
  • HMO projects invariably return better yields than traditional buy-2-let and single let properties.

Have Questions?

If you want to convert your existing property into a commercial HMO or you want to start a new HMO project from the scratch, you may be uncertain of what funding options you have and how much capital you will need to get the HMO up and running.
Our HMO experts at Commercial Finance Network are here to help. Contact us today and we’ll gladly explain how it works and discuss your options.