Renting out a house in multiple occupation (HMO) can be very lucrative and more so than a standard buy-to-let investment.
HMOs are more complicated to set up and manage, though, being both time-consuming and costly compared with normal rental investments. One factor that can increase your costs is the possibility of needing an HMO licence for your property.
An HMO licence isn’t always required and, in this guide, we’ll explain when you need one, how to apply for one, what to do if your application isn’t approved and how lenders view HMO licences when considering mortgage applications.
The need for HMO licences
HMO licences were introduced under the Housing Act 2004 to ensure certain conditions and safety standards were met for this type of property. As well as mandatory licences for HMO properties that meet the criteria, additional HMO licences can be required by local councils. These can be in specific areas or an entire area covered by a council to deal with particular situations, such as controlling the number of HMO properties in that area.
Do you need an HMO licence for your property?
HMOs are defined as properties that are rented out to three or more unrelated tenants who have their own bedrooms and share communal facilities, such as a kitchen and bathroom. If your HMO property is in Scotland or Northern Ireland, it’s mandatory to have a licence. In England and Wales, however, it depends on the size of your property and the local council’s licencing requirements.
Large HMOs must have a licence and your property is considered to fall under this category if:
- It’s rented to five or more tenants who comprise more than one household.
- Some or all of the tenants share the kitchen, bathroom or toilet facilities.
Previously, properties also had to have three storeys or more to be included in this category but that stipulation changed in October 2019. As this factor was removed, a considerable number of rental properties then fell under the HMO category. This increased both the need for HMO mortgages instead of standard buy-to-let ones and the need for HMO licences in areas where they were required.
Smaller HMO properties don’t automatically need licences. This depends on the local council so it’s important to check their requirements before either purchasing a small HMO property or converting an existing property to be used as a small HMO.
At Trinity Finance, we have considerable experience with HMO properties. We can guide you on your responsibilities as a landlord and the legal regulations for this type of property. We can advise you on the licencing requirements in the local areas and ascertain whether you need a licence for the property in question. We work closely with lenders specialising in HMO mortgages and our expert mortgage brokers are ready to assist you with your mortgage application and to find a competitive deal for you. As well as that, we can arrange your HMO insurance.
When you’re ready to proceed with your HMO investment, just give us a call on 01322 907 000 or send us an email at firstname.lastname@example.org and we’ll be happy to help you. If you prefer, use our contact form to send us your details and one of our specialist brokers will reply to you as quickly as possible.
Validity and costs of HMO licences
HMO licences are issued per property rather than one licence per landlord. This means if you have four HMO properties that are subject to the licencing requirements, you have to apply for four HMO licences. An HMO licence is valid for a maximum of 5 years and must be renewed before it expires. The exception to this is in Scotland where licences are valid for up to 3 years. HMO licences in Scotland must also be renewed before they expire.
HMO licence costs depend on the relevant local council. Some have fixed rates while other councils charge according to the number of bedrooms the property has. The fees for HMO licences can vary from hundreds of pounds to over a thousand so it’s essential to consider this when working on your calculations for an HMO investment.
What happens if you don’t have an HMO licence?
If your property requires a licence and you have rented it out without one, it’s considered a serious offence. You may be subject to an unlimited fine if you’re found to have rented out an unlicensed HMO.
It’s also possible for tenants to check whether HMO licences are held for properties that require them. If you have rented out your property without a licence, your tenants can claim back the rent they’ve paid via a Rent Repayment Order.
How to apply for an HMO licence
It’s important to know that not every licence application is approved. This is because local councils check both a property’s suitability for use as an HMO as well as the appropriateness of a landlord or managing agent. Whoever manages the property – whether you or an agent on your behalf – must be found to be ‘fit and proper’ to do so. Therefore, you mustn’t have any criminal convictions or have breached the code of practice or laws that apply to landlords. Regarding the property, it must be suitable for the number of tenants in both its size and facilities. Some councils set additional licencing requirements too.
There are various safety measures to fulfil for an HMO property. These include installing an adequate number of smoke alarms and maintaining them. You also need to have each electrical appliance in the property tested and be able to provide the safety certificates upon request. An up-to-date gas certificate must also be given to the local council each year.
To apply for your licence, you can download an application form online. The local council can provide you with the relevant link. Have your payment details to hand for the fee as well as relevant documentation that may be requested, such as a gas safety certificate, an Electrical Installation Condition Report, fire safety records and a plan of the property layout. You’ll also need proof of your permanent residential address, such as a copy of a bank statement or your driving licence. Some councils may ask for additional documentation at the application stage, such as a PAT certificate for the electrical appliances and a sample copy of the tenancy agreement.
What happens next?
Your application will be assessed and it’s essential to provide everything that’s requested on the form to avoid rejection. As long as you have submitted your application, you can use your property as an HMO while the council continues with its assessment. Part of this will include a property inspection. If the necessary criteria have been met, a draft licence will be issued detailing the terms and conditions with a given time frame to respond, such as 28 days. If you don’t respond within the time frame after the draft licence has been released, a full licence will automatically be issued.
What to do if your application is refused
As mentioned earlier, not all applications are accepted. One reason for this may be that the property needs to be brought up to a certain standard, such as the types of shared facilities available or the quality of those facilities. If your application is rejected, you’ll receive notification of this including the reasons why. You’ll have a certain time frame, such as 28 days, to respond. If, for example, your property needs improvements, you can reapply for a licence once these improvements have been made. You also have the right to appeal against the decision via the Residential Property Tribunal. If you don’t respond at all within the time frame, though, your licence request will be refused altogether.
As well as carrying out a property inspection when you apply for your HMO licence, the council can carry out inspections during the licence term. This is to ensure that the property remains up to standard without any infringements of the health and safety requirements. If these checks show that you have failed to adhere to the conditions of your licence, you can be fined and the council may also revoke your licence.
Lenders and HMO licences
When you apply for an HMO mortgage or remortgage, the lender will need to know whether the property requires a licence. Due to the risk involved with this type of investment, some lenders only offer loans for licenced HMO properties. Should you need a licence for your property and don’t have one, the lender may give you a specified time frame to apply for it while processing your mortgage application. This will be on the understanding that you are considered ‘fit and proper’ to handle the management of an HMO property. On the other hand, if you’ve already got a licence, this may help to make the underwriting process slightly quicker.
We can guide you on the licencing requirements for your HMO property
Whether you’re looking to purchase a property as an HMO investment or want to convert the use of an existing property to that of an HMO, we can assist you with the licencing requirements. At Trinity Finance, we can advise you on the HMO criteria set by the local council and help determine whether your property needs a licence. Our specialist mortgage brokers in Kent, London and Edinburgh are well versed at dealing with HMO properties and can ensure you’re fully aware of your obligations as an HMO landlord as well as the legal requirements you must adhere to.
We work closely with lenders offering HMO mortgages and, as some of these only offer HMO products through brokers, you can rest assured we have access to the latest and most competitive deals. The criteria for HMO mortgages are stricter and the rates are usually higher than for standard buy-to-let mortgages but our mortgage experts will ensure your application meets the necessary requirements and strive to find the best HMO mortgage for your circumstances.
Give us a call on 01322 907 000 to get started with your HMO investment. We can also recommend managing agents for your property and ensure you have the correct landlord insurance cover in place. If it’s out of office hours, email us at email@example.com or send an enquiry to us via our contact form and one of our mortgage specialists will reply to you as quickly as possible. Whilst being an HMO landlord may seem daunting at first, it can feel a lot easier with the right help — and that’s what we’re here for.