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Latest News What is HMO insurance? | The ultimate guide to HMOs
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What is HMO insurance? | The ultimate guide to HMOs

What is HMO insurance?

If you’re considering buying a house in multiple occupation (HMO) or converting an existing property into one, you’ll need to be aware of the relevant regulations as well as have the best HMO insurance. Not only will this mean your property is safe and habitable for your tenants, but it’ll also ensure you’re managing your HMO legally. To help you learn more about owning and managing a multiple-household property, we’ve created this guide to HMOs. You should also make sure you check out the Housing Act 1985 for all the details on landlord and tenant rights in the UK.

What is an HMO?

HMO stands for ‘house in multiple occupation’. Fundamentally, HMOs are house shares where three or more separate households live in the property, sharing some facilities. A household can be one person, a couple, or a family (including grandparents and stepfamilies).

In other words, if you have three or more unrelated individuals living in one house sharing a bathroom, kitchen, living room or other communal space, your property will likely be classed as an HMO.

Renting out an HMO isn’t quite the same as leasing out a single-household property. Although the financial rewards can be much greater, HMOs can be tricky to manage, especially if there’s a high turnover of tenants.


Is an HMO commercial or residential?

HMOs are generally classed as residential properties in the UK. However, there may be occasions where you will need to apply for a commercial HMO mortgage if you’re buying a substantial property or one that features a commercial element alongside accommodation.


What defines an HMO?

HMOs are defined as properties where at least three people from different households rent shared amenities such as a kitchen, bathroom, or toilet. This can include shared houses, bedsits, and some student accommodations.

Thinking about property HMOs?

Can anyone be an HMO landlord?

There are no restrictions on who can be an HMO landlord, but if you decide to become one, you will be subject to additional legal requirements and may need to apply for a license (see below). It’s also important to ensure you have the right type of landlord insurance for your property, for example, standard landlord insurance or home insurance won’t provide cover for an HMO, and if your HMO is an apartment then you’ll need landlord insurance for flats.


Why do people live in HMOs?

People choose to live in HMOs for a variety of reasons, including:

  1. Cost: HMOs are often more affordable than renting a property individually, as sharing the cost of rent and utilities among multiple tenants can help reduce individual expenses.
  2. Social interaction/community: living with a group of people can provide a sense of community as tenants often share areas like kitchens or living rooms, which can help to spark friendships and provide a support network.
  3. Flexibility: HMOs often provide flexible rental arrangements, such as shorter lease terms, allowing people to come and go more easily than a standard rental agreement. This can be attractive to people who prefer not to commit to long-term contracts, for example, if they are working in an area as a freelancer and have an open-ended contract.
  4. Location and convenience: HMOs are often located in areas with good access to local amenities, transport routes, work, and schools.
  5. Shared responsibilities: certain responsibilities, such as property maintenance and utility bill payments, may be shared among tenants, which can make managing finances easier than renting individually.
  6. Student accommodation: students’ accommodation tends to be classified as an HMO as a group of three or more students who aren’t related renting the same property would automatically make it an HMO.


Can a landlord live in an HMO property?

Yes, there are no restrictions on landlords living in the same property where they rent out rooms to tenants.


How profitable is an HMO when compared to a standard buy-to-let?

Comparing the profitability of an HMO with a standard buy-to-let property can vary depending on factors such as the location and size of the property and demand in your area.

While they offer the potential for higher income by renting out individual rooms to multiple tenants, you should also consider the increased management responsibilities and costs associated with running an HMO.

As HMOs have multiple tenants, the risk of periods without any rental income may be reduced as it’s unlikely all rooms will be vacant simultaneously. Although, if your HMO is specifically marketed to students, you’ll likely have void periods between the end and start of academic years.

You might also find that HMOs have higher upfront costs and ongoing expenses than a standard buy-to-let property, with property modifications, HMO licenses, and compliance with safety regulations to consider, alongside increased expenses for maintenance, repairs, and management fees.


What are the disadvantages of an HMO property?

If you’re thinking of renting out an HMO, it’s worth considering some of the drawbacks:

  1. Increased management responsibilities: HMOs can be more complex and time-consuming than traditional rental properties due to the different individual tenant’s needs, and ensuring compliance with specific HMO regulations and licensing requirements. You’ll also need to ensure you have issued the correct type of tenancy agreement for each tenant, and bear in mind that some insurance policies require you to use an assured-shorthold tenancy (AST) agreement.
  2. The potential for higher tenant turnover as HMOs often attract people seeking short-term contracts.
  3. Higher maintenance costs due to increased wear and tear in communal areas with more people using them.
  4. Increased use of facilities such as bathrooms and kitchens could lead to higher replacement costs of more expensive facilities.
  5. Limited control over individual tenants’ behaviour or their treatment of the property, which can be more challenging to address than in a standard rental property.
  6. Potential regulatory requirements as HMO properties are subject to specific regulations and licensing requirements imposed by local authorities.


Why are people against HMOs?

People object to HMOs for various reasons, but typically they tend to be concerned that they’ll have a negative impact on the character of the local community due to noise levels, parking problems, or a perceived decrease in the overall quality of life.

Overcrowding and a strain on local resources is another common issue, along with poor property maintenance and transient tenants leading to a lack of community culture, all of which may lower property values.


Can neighbours reject HMOs?

While neighbours don’t have the power to reject the establishment of an HMO outright, they may voice their concerns during the licensing process or planning permission stage. The final decision rests with the local authority, who will consider factors such as the impact on the local community, housing standards, and the specific regulations governing HMOs in that area.


HMO legal requirements

You’ll need to ensure your property meets certain criteria before marketing it as an HMO.


HMO licensing

You must have a licence to run your HMO property if it’s classed as ‘large’ which means:

  • You rent your property to five or more people from more than one household.
  • Some or all of your tenants share toilet, bathroom, or kitchen facilities.
  • At least one of your tenants pays rent.

Licences are valid for a maximum of five years, and you must have one for each HMO you own. You can apply for a licence here.

Even if your HMO isn’t officially classed as ‘large’, you should still double-check the local council’s rules as some authorities require you to apply for a licence.


Who is responsible for HMO licences?

As a landlord, you are responsible for ensuring your HMO licence is current, but if you use a property management agent, they can apply for you.


Do you need an HMO licence for three tenants?

Most likely not, however, you may still need a licence depending on your local council’s rules, so make sure you contact them to check.

You’ll need a licence if you’re renting out a large HMO in England or Wales, which can be defined in a number of ways:

  • If it is rented to five or more people who form more than one household
  • Some or all tenants share facilities such as toilets, bathrooms, or kitchens
  • At least one of your tenants pays rent


Is it illegal to rent without an HMO licence?

You could face an unlimited fine, if your property requires an HMO licence and you don’t get one.


How long is an HMO licence valid for?

Licences are valid for a maximum of five years; you must ensure you renew them before they expire.


HMO fire safety and smoke alarms

Whether you own a standard buy-to-let or an HMO, you’ll have certain landlord responsibilities to meet. This includes making sure you comply with fire safety rules, and testing gas and electrical appliances.


HMO room sizes

Rooms and facilities in HMO properties have to meet certain conditions. You can find detailed legislation about room sizes and occupants on the Government website, but key points include:

  • The property should be suitable for the number of people living there.
  • Bedrooms for anyone under ten years old must be at least 4.64m².
  • Bedrooms for anyone over ten years old must be at least 6.51m².
  • Bedrooms shared by two people older than ten must be at least 10.22m².
  • Rooms less than 4.64m² cannot be used as bedrooms.


Fitness for human habitation

HMOs also need to be ‘fit for human habitation’ and free from hazards that have the potential to cause damage to health or quality of living. To clarify what this means, the housing health and safety rating system (HHSRS) was introduced. The HHSRS sets out a number of hazards which, if found in your HMO, will need to be resolved as soon as possible. For example:

  • Damp and mould
  • Temperature extremes from too cold to too hot
  • Asbestos
  • Carbon monoxide
  • Overcrowding
  • Poor sanitation, hygiene, or lack of water supply


HMO safety requirements

With HMOs, you must show your local authority an updated gas safety certificate yearly. You could also be asked (at any point) to show them other safety certificates, so it’s in your interest to keep these regularly updated.


How to turn a property into an HMO

If you’re considering buying a property to convert into an HMO or turning an existing let into one, there’s a lot to think about. From arranging an HMO mortgage to budgeting for renovation, here’s what to bear in mind.


HMO research and budgeting

If you own a property that you want to convert into an HMO, check with your local authority’s planning department to see if you need any particular permissions, for example, if you’re converting a garage or adding an extension.

If you’re converting a property, you can expect to be visited by your local authority, too – this could be at any time within the first five years of conversion. They’ll review your HMO in light of HHSRS standards, so it’s best to ensure you fulfil these at all times so you’re not caught out.

Before you start work, consider whether your property is suitable for use as an HMO. Consider factors such as size (including the minimum required sizes for bedrooms), layout, number of rooms, and amenities and ensure that you’ll meet the minimum requirements for HMO conversions, including proper fire safety measures and adequate facilities for the number of tenants.

Consider what modifications and renovations you’ll need to carry out, which may include creating additional bedrooms, installing ensuite bathrooms, improving fire safety measures, and providing adequate communal spaces, then get quotes from contractors to estimate costs accurately.

These costs should form the basis of a comprehensive budget, including the purchase price if you don’t already own the property, any licensing fees you’ll need to pay to the council before you rent it out, professional services such as architects, contractors, and surveyors, and safety measures such as fire alarms and emergency exits, as well as ongoing maintenance costs.

You should also research the local market to estimate the potential rental income based on similar properties in your area. You may decide to manage the property yourself or use a management company, so if you do, you’ll need to allow for their fees as well. Once all these costs have been factored in, you can estimate when you should break even and what level of profit you can expect from there.


HMO mortgages

Not all buy-to-let mortgage lenders will lend to you for an HMO purchase, so it’s important to check your lender’s terms and conditions. It’s also worth knowing that you’ll be expected to have a larger deposit if you need an HMO mortgage – around 25% is fairly typical.


HMO size and tenant count

HMOs can vary in size considerably from an apartment to a large house that’s been converted into a multiple occupancy residence for more people than it was originally designed for, such as a student let, and this will have a knock-on effect on the number of people living there.

Local authorities will typically specify minimum room sizes for HMO properties to ensure adequate living space for tenants, which may include a minimum floor area and ceiling height per occupant, so this will impact how many people can live in a property. Additionally, there may be local regulations that specify a maximum tenant count.

You’ll often find local authority licensing requirements include provisions for room sizes, facilities, and maximum tenant counts, so make sure you do your research and understand the specific regulations and guidelines in your area properly.


Design and layout

Designing a property and getting it ready for rental can be time-consuming and expensive, but it can be even more complex with an HMO. Here’s what to consider:

  • Room size – remember that bedrooms must meet certain minimum measurements.
  • Employ expertise – to make the most of your space, you’ll likely need to knock down and reposition walls. If that’s the case, hire a professional surveyor, architect, and builder. If you prefer to be hands-off or don’t have the time to manage the conversion, you might also need to budget for a project manager.
  • Kitchens and bathrooms – should be finished to a high standard and have enough facilities for all your tenants. This could mean having a combination of a bathroom, shower room and toilets or making sure there are enough kitchen cupboards as well as fridge and freezer space. Some HMOs have small cooking spaces in bedrooms – if you install these, you will need to ensure you can get insurance for this, as some insurers will not insure fire risks associated with cooking in bedrooms.
  • Communal spaces – any communal spaces (whether hallways and corridors or a living room) should be easy to maintain and accessible to all tenants.
  • Safety – whether or not your tenants know each other, individual safety is paramount. Ensure locks on bedroom doors, all other windows, and external doors are properly fitted and functioning. It’s also a good idea to ensure enough outside lighting for tenants to feel safe.
  • Furniture and appliances – if you provide any contents, they should be usable and in good working order. If you include appliances such as washing machines or a dishwasher, it’s practical to ensure that you cater for the number of tenants you have.
  • Décor – it’s easy to overlook décor and finishing, but it can be the deciding factor for many tenants. Consider something neutral that most people will like.
  • Outdoor space – usable outdoor space can be a real bonus and help make your property stand out. It doesn’t have to be landscaped or filled with plants, just neat and tidy. A barbecue and seating are also a nice touch that can make your property more appealing.


Does an HMO need a living room?

While there’s no specific legal requirement for HMOs to have a living room, you may want to provide one to make your tenants’ lives more pleasant. Also, rules can vary by local authority, so while a living room may not be explicitly required, it’s often expected that HMO properties will include a communal area. Additionally, having a shared living room may make the property more attractive to potential tenants.


Top 8 HMO renovation tips

To help you focus on the key areas, here are some things to consider:

  1. Make sure you understand all the regulations in your local area before you carry out any work to avoid having to redo things to meet the requirements.
  2. Optimise your property’s layout and each room’s design to maximise the usable living space by installing built-in storage solutions and space-saving furniture. For example, a tenant working from home might appreciate a built-in desk. Soundproofing can create a more peaceful environment in the property, reducing the chance of problems with tenants or neighbours making noise complaints.
  3. Enhance the communal areas, including the kitchen, living room, and dining areas, making them functional and welcoming. Investing in good quality materials and furniture can lead to lower costs further down the line.
  4. Provide enough bathrooms and facilities for your tenants. En-suite bathrooms may feel excessive, but they can help avoid overcrowding and inconvenience.
  5. Focus on durability and easy maintenance when you renovate your HMO to keep cleaning and maintenance costs down and increase longevity.
  6. Make your property as energy efficient as possible to reduce utility bills and attract tenants. Install energy-efficient appliances and lighting as well as good-quality insulation.
  7. Focus on safety throughout your property. Install fire doors, smoke detectors, and fire alarms in accordance with regulations and consider adding extras such as emergency lighting to keep your tenants safe.
  8. Make your property more appealing by investing in the exterior (as noted in Section 11 of the Landlord and Tenant Act 1985), including a well-maintained garden and entrance hall.


Property damage & maintenance

Good maintenance will play a key role in ensuring your HMO runs smoothly – both from a property point of view and keeping your tenants happy and comfortable.

If you’re a full-time landlord or have a portfolio of properties, you might already have a maintenance team in place or at least have a preferred list of tradespeople you can turn to. If you don’t or prefer to outsource your maintenance, many letting agencies also have HMO management services.

Responding to issues quickly will keep your tenants happy but and ensure any problems you face don’t develop into bigger issues. Make sure you know the landlord right of entry rules so you know when you need a tenant’s permission to enter the property. You may also want to consider landlords fixtures and fittings insurance if you concerned about the additional expense of replacing items if they are damaged, for example.


Management of your HMO

It can feel like a daunting prospect if you don’t have much experience managing an HMO. If you plan on managing the HMO yourself rather than using a letting agency, there are a number of things to bear in mind.


Do HMO landlords pay bills?

The situation will vary depending on the rental agreement you have in place. For example, you may offer rent that includes utility bills such as water, gas, and electricity; in this case, you would pay the bills on behalf of your tenants and factor the cost into the rent you charge.

Alternatively, you may leave each tenant in charge of paying for their own utility bills or in some cases, you may decide to go for a shared bill arrangement, where the total cost of utilities is divided among the tenants. You would then collect each tenant’s share and pay the bills on their behalf.

Either way, it’s important to clearly define the responsibilities and expectations regarding bill payments in the tenancy agreement to avoid confusion.


Finding HMO tenants

If your HMO is brand new, finding tenants will be the first hurdle you’ll come up against. A letting agent can help with this, but they’ll charge for their services. The advantage of using an agent is that they can also check your tenants’ right to live in the UK and carry out tenant referencing.

If you prefer to manage the process yourself, you can use traditional means such as local classified ads, but knowing your target market is key so that you make sure you meet what they’re looking for, such as facilities, location, and transport links.

Make sure you highlight the benefits of your property, such as affordability, attractive communal areas and responsive maintenance and incorporate these into an appealing description of the property along with compelling photography when you list it.

If you’ve already got tenants and need to fill an upcoming vacancy, online platforms and social media can help spread the word. Prompt replies to enquiries will also help maintain an edge over other properties people might consider. Encouraging existing tenants to provide testimonials for your listings could help as well.

You may also want to develop relationships with local businesses such as universities, colleges, and companies to promote your HMO to their students or employees, and local community events or initiatives to help raise awareness of your property and enhance your reputation.


Who typically lives in an HMO?

HMOs attract various tenants depending on their location and features. Students are often the first example that comes to mind as they generally look for affordable accommodation with their friends near where they’re studying.

They’re also popular with individuals and people on lower incomes as they offer affordable accommodation and a sense of community that many find they miss when living alone.

Additionally, people who are new to an area or only plan to be based there for a short period due to work commitments often find HMOs convenient as they provide essential amenities to help people get set up quickly.


HMO management services

HMO management services vary in cost, but some will handle the entire process for you – from finding tenants to cleaning rooms at the end of every tenancy. Whether you opt for some or all of the services will depend on your budget, but it could simplify HMO management considerably – especially if you’re a new landlord or live far away from your rental.

Don’t forget the Tenant Fees Act puts restrictions on what services you are allowed to charge tenants for.


Protecting your HMO

You may be considering whether you need landlord insurance. Managing your HMO properly means ensuring you’ve got appropriate insurance to protect you against unexpected incidents and costs, including:

  • Damage to the structure of your HMO caused by flood, fire, storms, and subsidence.
  • Malicious damage and vandalism.
  • Damage to any contents you provide as part of your let.
  • Loss of rent because of an event you’re insured for.
  • Liability if someone blames you for injury or damage to their property.

When searching for HMO insurance or short-term let insurance, if you plan to Airbnb your property it’s vital to ensure your policy specifically covers houses in multiple occupation. These policies will take into account the unique risks you face because of the nature of the property and the number of people you rent to – all of which increase the likelihood of a claim.

To ensure you get the best value, it’s worth comparing policies on a like-for-like basis. Be wary of low costs policies as they might not give you the level of cover you need, have a high excess, or include a number of limitations and exclusions. Our landlord insurance advice article gives you further guidance on the type of insurance to consider for your rental.

At Alan Boswell Group, we take a tailored approach and will focus on ensuring your policy fits your needs and your property’s risks. To find out more about our award-winning insurance products and how we can help protect your assets, speak to a member of the team directly at 01603 216399.

Related products: Landlords Insurance HMO Insurance