The HMO buy-to-let opportunity

The demand for shared accommodation continues to grow as people look for more affordable, flexible and social ways to live. At the same time, the number of houses in multiple occupation (HMOs) has fallen, with many landlords leaving the market due to increasing costs and tighter regulations. The number of HMO properties has dropped by 2.4%* during the last year and it’s creating a gap between HMO supply and tenant demand, presenting an exciting opportunity for those landlords in a position to invest. 

HMOs are properties let by the room, paid for by at least three unrelated individuals, with shared facilities such as kitchen, bathroom and communal areas. Accounting for 2% of the UK's housing stock, the main attraction for landlords is the potential to generate higher rental yield and capital growth than single-tenant rentals. However, this advantage is balanced by the complexities and increased costs of owning a specialist buy-to-let property like this. Therefore, it’s important for landlords to understand all of the key requirements, from the need for a specialist HMO mortgage to licensing regulations and property maintenance. Here we highlight three key areas for every first-time HMO landlord to consider:

Talking to your local council

Rules and regulations can vary from council to council, so it’s wise to check on local requirements as early as possible to avoid unwelcome surprises.

• HMO license - typically, this is needed for larger HMO properties – ones with five or more people sharing facilities, from two or more separate households. However, in some areas councils require a license for a smaller property, so always check. 
• Planning permission – some local councils have the power to limit changes being made to a property and there may be implications when converting a building into an HMO. To ensure every HMO is fit for purpose, a property must comply with a variety of regulations relating to bedroom size, communal areas, shared kitchen and bathroom facilities.
• Council tax – the approach to HMO council tax varies across the country, with some councils charging for the property as a whole and others for the individual rooms rented. This has implications for costs and affordability for both landlords and tenants. To improve consistency and fairness, the Government is proposing changes across England to ensure HMOs are treated as one property with one council tax band, where the landlord pays the bill.

Knowing your obligations 

• Management and maintenance - HMOs must be fit for purpose and maintained to a high standard throughout, from walls and ceilings to fixtures, fittings and communal areas. Tenants will also expect a speedy resolution to issues. Managing multiple tenants and their individual needs can be complex and time-consuming and thought should be given to whether this responsibility is self-managed or via a lettings agent. 
• Up-to-date safety checks - professional health and safety inspections must be performed every five years in line with the Housing Health & Safety Rating System (HHSRS). In addition, an annual Gas Safety Certificate should be obtained and Electrical and fire Safety checks carried out every five years. 
• Energy efficiency compliance – from 2025 newly rented properties will need an energy performance certificate (EPC) rating of ‘C or above’, with the same applying to existing tenancies from 2028. This can be a challenge, particularly for older, less energy-efficient buildings such as HMOs. Assessing the impact now and establishing what must be done will ensure the property is ready to comply with the new rules. At Vincent Burch Mortgage Services we can explain what the EPC changes could mean for you and your investment, from HMO finance solutions to advice on upgrading, gaining competitive advantage and improving value-for-money.

Involving the experts

For complex buy-to-lets such as HMOs, it makes sense to take advantage of the knowledge and experience of the professionals. For example, a qualified accountant or tax specialist can advise on matters ranging from identifying the most tax-efficient option and cost-efficiencies, to deciding the appropriate business structure for your investment; an independent mortgage broker will search the market for the best HMO mortgage deals available, both long and short-term; and a lettings agent can take the strain when it comes to managing and maintaining your HMO property.

Finding finance that fits

Our team at Vincent Burch Mortgage Services has extensive experience in the specialist HMO mortgage market and can offer personal, professional, and impartial advice on all aspects of your investment. Whether you’re looking for an HMO mortgage, short-term finance for energy efficiency improvements or a property conversion, we can help. Our whole-of-market approach means we have access to specialist lenders such as Lendinvest, Landbay and Aldermore and can secure a mortgage deal tailored to your individual needs.

The growing appeal of HMO properties for landlords

The number of properties being converted into houses in multiple occupation (HMOs) has risen steadily over recent years. As the cost of living drives demand for good quality, affordable accommodation and cities face a shortage of housing stock, HMOs have emerged as a potential solution to the financial pressures faced by both landlords and tenants.

Although HMOs can attract higher rental yields and capital growth, this specialist buy-to-let market comes with more complexities for landlords to navigate. Understanding areas such as financing, licensing, regulations, costs and management will be key to operating a successful long-term HMO business.

Know your HMO

• HMO or Multi-Unit Freehold Block (MUFB) – when acquiring a large property for conversion, potential landlords face a choice between buying an HMO or MUFB. An HMO is a property let by the room with shared facilities (kitchen, bathroom, communal areas) and paid for by at least three unrelated individuals. A MUFB is one freehold property divided into multiple, independent residential units, such as a purpose-built block of flats. The decision on the type of property to buy may be influenced by the surrounding area. For example, a location with an established student population may suit an HMO whereas a residential area could be more attractive for a MUFB. Always speak to the local council to understand the implications and costs of your choice before investing.

Regulations and licensing

• Regulations – to ensure every HMO is fit for purpose, properties must comply with a variety of regulations relating to bedroom size, communal areas, shared kitchen and bathroom facilities as well as planning permissions and construction type. Rules may vary by location so it’s important to talk to your local council about your plans in advance of a property purchase.
• Licensing – typically, larger HMO properties with five or more people sharing facilities, from two or more separate households will need a license. Again, this may differ by area, so check the local authority’s requirements before proceeding.

HMO specialist finance

• Financing – we’d recommend taking expert, professional advice to understand any tax implications, establish the most appropriate business structure and find the best HMO mortgage finance for your circumstances.

Research and management

• Location – identify local demand and competition before investing in an HMO property to maximise returns. In addition to offering buy to let HMO mortgage advice, an independent mortgage broker can help you gain a good insight into the property landscape in your area.
• Management and maintenance – the property must be maintained to a high standard with up-to-date Gas Safety and Electrical & Fire Safety checks. Specific HMO insurance is required and professional health and safety inspections must be performed every 5 years.

Flexible HMO mortgage lenders

In response to the growth in HMOs, some lenders have broadened their criteria to make funding available to more landlords, for example:

• First-time landlords - given the complexities of the sector, HMO mortgages have typically only been available to landlords with previous buy-to-let experience. Now, there are new products offering deals for first-time landlords who already have a residential mortgage.
• Older landlords - the age of investors is becoming less of a limiting factor when securing finance. Some lenders are happy for a buy-to-let HMO mortgage to end well past retirement, allowing potential landlords to enter the market later in life.

Many of these buy-to-let HMO mortgages are offered by specialist lenders and are only available through independent mortgage brokers with access to products catering for this complex sector.

How can Vincent Burch Mortgage Services help?

As a whole-of-market intermediary, our expert team at Vincent Burch Mortgage Services has access to all specialist lenders offering HMO mortgages. We’ll work together to understand your needs and find the best mortgage for your plans. With extensive experience, we are well-placed to guide you through the process and pride ourselves on helping customers make the most of their investment.

Get your property portfolio moving by calling us today on 01603 851534 or email [email protected]

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