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A quick guide to HMO conversion

by | Aug 3, 2016 | Advice, Brokers, Clients

Building with scaffoldingGovernment definition: A house in multiple occupation (HMO) is a property rented out by at least three people who are not from one ‘household’ (eg a family) but share facilities like the bathroom and kitchen.

For many landlords, HMOs are an attractive proposition. Renting out a property to a set of individuals rather than as a single family unit can bring in a higher rent. However, not only do they need more work to maintain, there are also specific things to bear in mind if you are considering converting a single residential property into one.

Make sure the property you are buying is right for an HMO

  • The property needs to be suitable for the planned number of occupants, in terms of size and facilities as it will need to cater for at least three people living together.
  • Make sure you have the budget to do it up properly. HMOs are no longer just for students; in order to get a good quality tenant profile you will need to do it up to a high standard and not cut corners.
  • If you need to undertake significant structural works in order to make the property into an HMO, ensure you have the required planning permissions before starting or seeking finance.

Familiarise yourself with the rules in your area

  • You may need a licence. If your property is rented to five or more people who form more than one household, is at least three stories high and the tenants share toilet, bathroom or kitchen facilities, it will be classed as a large HMO. In that case you will need a licence from the council. Licences last for five years. However, the need for licences for smaller properties depends on the area so if you are intending to convert a property to an HMO, check with the local council and see the government’s website on HMO licensing for more.
  • Be aware of Article 4 Directions in your area which may restrict conversion to HMO. Article 4 Directions are used by local authorities to limit the number of HMOs in a geographical area. They apply to all HMOs in an area, and the landlord will need to register the property as an HMO. The National Landlord Association has a flyer explaining the Direction in detail, but landlords should see their local government website for details specific to their area.

Consider the works you are undertaking

  • As you are making the effort to convert the property into an HMO, you do not want valuers to consider the property to be worth the same as the single residential property it was before. Make sure it is clear from the amenities provided that the property is intended for separate individuals rather than a family.
  • Be careful that you do not go too far and make the accommodation into entirely separate units. For example, the cooking facilities in an HMO should be communal. If each room has fixed cooking facilities (eg hobs), then they becomes separate units rather than HMO.  Different rules/planning apply for separate multi-let units.

Look into your finance options

In order to do the conversion works you can use standard refurbishment finance, commonly in the form of a short term loan and then convert to a term facility once the works are completed. Some lenders offer specific HMO refurbishment products. When it comes to taking out an HMO mortgage, it is not always necessary to have prior HMO experience. Lenders prefer HMO landlords to already have HMOs in their portfolio, but having four to five simple properties is considered equivalent experience to an HMO by many lenders. However, the rate on the loan will be dependent on previous experience. HMO mortgages can be taken out either by an individual or as a limited company.

If you have any questions about HMO conversions or finance, feel free to get in touch on (0)1923 655441 or contact@cpcfinance.co.uk. Also, please follow us on LinkedIn for our latest updates.