Why are Houses in Multiple Occupation (HMOs) popular with buy-to-let investors?
Buy-to-let investors can now only claim back expenses at the lower rate of tax, so the same rental yield is no longer as profitable. HMOs are viewed as an alternative property investment for buy-to-let investors.
What are Houses in Multiple Occupation (HMO)?
According to the Government website an HMO is: ‘A house in multiple occupation (HMO) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’.’
In England and Wales students in a shared property would be classed as an HMO. Since October 2018 the classification of HMOs has changed. Previously a property was only considered an HMO if it was at least three storeys high. Now that criteria doesn’t apply.
A property is considered a large HMO if it has the following:?
- If a property is rented out to five or more people
- If some or all of the tenants share toilet, bathroom or kitchen facilities
- At least one tenant pays rent (or their employer pays it for them)
All large HMOs must have a licence issued by the local council. These must be renewed every five years. The council also has the right to inspect the property.
Do smaller HMOs need a licence?
The Government website recommends that you check with your local council if you need a licence whatever your size of HMO. All large HMOs need a licence but some smaller HMOs need one too depending on individual council criteria. You need a separate licence for each HMO you run. HMO licence fees and the amount of time it takes to issue a licence differs between councils.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.