Navigating HMO Purchase: Regulations, Mortgages, and Large HMO Considerations

Are you buying a House of Multiple Occupations (HMO)? Before you start, understanding the legal and financial landscape is crucial. Here’s a high-level guide on what to take into account:

Regulations:

• Mandatory HMO Licencing: Your property is an HMO, if at least 3 tenants occupy the property forming 2 or more households and where toilet, bathroom or kitchen facilities are shared.
• Check if the property has already has the appropriate licence in place or you may need to factor in the costs of obtaining one.
• Minimum Standards: HMOs must meet specific space, ventilation, lighting, and amenity standards. Verify compliance through property details and seller documentation.
• Fire Safety: Strict regulations apply, including smoke alarms, escape routes, and fire doors. Ensure the property meets these requirements before purchase.
• Tenancy Agreements: Specific provisions exist for HMO tenancies, like rent periods and joint liability clauses. Please familiarise yourself with these and their implications.

Large HMOs (6+ occupants, 3+ households):

• Additional Licences: “Sui generis” planning licences and/or selective licences might be required for larger HMO properties, covering aspects like fire safety, amenities, and space per occupant. Check with your local council as each local authority will have differing legislation on this.
• Article 4 Directions: Local authorities can impose these, restricting HMOs in specific areas. Check for potential limitations before buying.
• Planning Permission: Large-scale alterations (change of use) or conversions might require planning permission. Consult a planning consultant if unsure.

Mortgages:

• Property experience: Lenders may require previous landlord and/or HMO experience or may require you to use a letting agent who specialises in managing HMO properties.
• Stricter Criteria: HMO mortgage products usually have higher interest rates than traditional buy to let mortgages and additional loan-to-value (LTV) limitations may apply.
• Specialist Lenders: Not all lenders offer HMO mortgages. Seek lenders specialising in HMO financing.
• Financial Strength: Demonstrate strong financial standing and property management experience.
• Deposit Requirements: Typically 25-35%.

Additional Tips:

• Seek Professional Advice: Consult a solicitor and mortgage broker specialising in HMOs.
• Long-Term Commitment: Owning an HMO property requires ongoing management more so than traditional buy to let properties. Ensure you’re ready for the responsibilities.
• Research and Due Diligence: Thoroughly research the property, regulations, and local market before making any decisions.

Resources:

• Your local council: For specific HMO regulations and licensing requirements depending on area.
• GOV.UK: Official guidance on HMO regulations: https://www.gov.uk/find-licences/house-in-multiple-occupation-licence & https://www.gov.uk/renting-out-a-property/houses-in-multiple-occupation-hmo
• National HMO Network: Resources and advice for HMO landlords: https://www.nahma.org/

By understanding these combined aspects, you can confidently navigate the purchase of an HMO and make informed decisions for your investment.

Remember, thorough research, professional guidance, and a long-term commitment are key to success in the HMO market. Our team comprises of the best financial advisors London working with people across the country. We will provide advice and guidance on your options guiding you from start to completion and help you turn an aspiration to a sustainable reality.

 

It is important to take professional advice before making any decision relating to your personal finances. Information on this page is based on our current understanding and can be subject to change without notice, so the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored advice and is for information purposes only.

Published Jan 2024.