Insight and events

If your buy to let clients are looking to maximise their portfolios, they may consider converting their rental properties into an HMO in order to benefit from higher yields and rental returns.

More bedrooms mean more rent. However, before seeking out a new loan, your clients will need a HMO licence in place, or have at least applied for one.

Without a licence in place, landlords will be unable to secure a loan against their property – that’s one licence per property, with each one valid for five years.

Overcrowding and room size rules for HMOs

The rules surrounding HMO licensing were updated in October 2018, so that properties provide suitable habitation and focus on the wellbeing of tenants. This means they must not be overcrowded or unnecessarily cramped, providing enough space for tenants to live comfortably.

Whether a property has three rooms or eight, landlords must ensure properties adhere to the minimum room sizes required for a HMO license, so that the dwelling remains fit for habitation.

If a property has five or more tenants from more than one household, with some sharing toilets, bathrooms or kitchen facilities, then a property is deemed as a HMO and will need a licence.

Schedule 4 of the Housing Act 2004¹ states that HMO landlords must ensure:

• They inform local housing authority if any room has a floor area of less than 4.64 square metres.
• That the floor area of any room used as sleeping accommodation by one person aged over 10 years must be no less than 6.51 square metres.
• That the floor area of any room used as sleeping accommodation by two persons aged over 10 years must be no less than 10.22 square metres.
• That the floor area of any room used as sleeping accommodation by one person aged under 10 years must be no less than 4.64 square metres.
• That any room with a floor area of less than 4.64 square metres must not be used as sleeping accommodation.

In regards to overcrowding, the Act goes on to discuss overcrowding in greater detail:

• Where any room in the HMO is used as sleeping accommodation by persons aged over 10 years only, it is not used as such by more than the maximum number of persons aged over 10 years specified in the licence.
• Where any room in the HMO is used as sleeping accommodation by persons aged under 10 years only, it is not used as such by more than the maximum number of persons aged under 10 years specified in the licence.
• Where any room in the HMO is used as sleeping accommodation by persons aged over 10 years and persons aged under 10 years, it is not used as such by more than the maximum number of persons aged over 10 years specified in the licence and the maximum number of persons aged under 10 years so specified.

Other local authority may have other guidelines or criteria that must be adhered to before letting out a HMO, so make sure your client check beforehand.

Your clients may need to make some adjustments to convert their properties and get them HMO-ready. Local authorities will check work has been carried out, with them undertaking a Housing Health and Safety Rating System (HHSRS)² risk assessment to ensure the property is of a certain standard and safe enough to inhabit.

Final thoughts

We’ve said it before – HMOs aren’t simple, and require a lot of thought from both investors and lenders. If they’re to be done correctly, they can bring positive financial benefits for your landlord clients, as well as offering suitable accommodation and a pleasant experience for their tenants.

With our experience and understanding of this challenging area of the market, you and your HMO clients are in safe hands. However, you need to make sure they check with their local authority on the requirements surrounding HMO purchases, as this will differ across the UK.

If you need any further help, get in touch with your senior business development manager or speak to the broker liaison team for more information on how we can support you.

¹https://www.legislation.gov.uk/ukdsi/2018/9780111167359/regulation/2/data.xht?view=snippet&wrap=true

²https://www.gov.uk/government/publications/housing-health-and-safety-rating-system-guidance-for-landlords-and-property-related-professionals