What is HMO insurance? | The ultimate guide to HMOs
If you’re considering buying an HMO or converting an existing property into one, you’ll need to be aware of all the regulations and not just having the best HMO insurance . Not only will this mean your property is safe and habitable for your tenants, it’ll ensure you’re running your HMO within the law. To find out more about owning and managing a multiple household property, here’s our ultimate guide to HMOs.
We’ve broken it down into the following sections so you can quickly find the information you need:
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, then your property is likely to 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.
Read more: Landlord’s guide to rent to rent
Legal requirements for HMOs
You’ll need to make sure your property meets certain criteria before you can market it as an HMO, for example:
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 (or it’s paid by their employer).
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 at GOV.UK, HMO licence.
Even if your HMO isn’t officially classed as ‘large’ you should still double check rules set out by your local council as some authorities still need you to apply for an HMO licence.
Living standards within an HMO
Rooms and facilities in HMO properties have to meet certain conditions. You can find detailed legislation about room size and occupants at Legislation.GOV.UK but key points include:
- The property should be suitable for the number of people living there.
- Bedrooms for anyone under 10 years old must be at least 4.64m².
- Bedrooms for anyone more than 10 years old must be at least 6.51m².
- Bedrooms shared by two people older than 10 years old must be at least 10.22m².
- Rooms less than 4.64m² cannot be used as bedrooms.
HMOs also need to be ‘fit for human habitation’ and should be free from hazards that have the potential to cause damage to health or quality of living. To clarify what this all 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
Safety
Whether you own a single household let or an HMO, you’ll have certain landlord obligations to meet. This includes making sure you have smoke detectors in place (and carbon monoxide if relevant) as well as testing gas and electrical appliance.
With HMOs, you’ll need to show your local authority an updated gas safety certificate every year. 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
Read more: Fit for human habitation: what landlords need to know before renting out a property
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 huge amount to think about. From arranging an HMO mortgage to budgeting for renovation, here’s what to bear in mind:
HMOs and buy-to-let mortgages
Not all buy-to-let mortgages can be used to fund an HMO purchase so it’s important to check the lender’s terms and conditions. It’s also worth knowing that you’ll be expected to have a decent deposit if you do need an HMO mortgage – around 25% is fairly typical.
Permission to convert your property
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 permission. For example, if you’re converting a garage or adding on 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 that you’re not caught out.
Renovation
Renovating any property and getting it ready for rental can be time consuming and expensive but it can be even more complex with an HMO. To help you focus, here’s what to consider when you renovate:
- Room size – remember that bedrooms in particular must meet certain minimum measurements.
- Employ expertise – to make the most of the space you have, it’s likely that you’ll need to knock-down and reposition walls. If that’s the case, it might be prudent to hire a professional surveyor, architect, and builder. If you prefer to be hands-off or you don’t have the time to manage the conversion, you might also need to budget for a project manager.
- Kitchens and bathrooms – both should be finished to a high standard and there should be enough facilities to cater for the number of tenants you have. This could mean having a combination of bathroom, shower room and toilets or making sure there are enough kitchen cupboards as well as fridge and freezer space.
- Communal spaces – any communal spaces (whether that’s 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 are fitted on bedroom doors and that all other locks on windows and external doors are properly fitted and functioning. It’s also a good idea to make sure that there’s enough outside lighting for tenants to feel safe.
- Furniture and appliances – if you’re providing 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 what there is, caters for the number of tenants you have.
- Décor – it’s easy to overlook décor and finishing but for many tenants it can be the deciding factor. For your own ease (and budget) it helps to use one colour throughout the property. This can boost the overall appearance and can even make a smaller area seem larger.
- Outdoor space – usable outdoor space can be a real bonus and can help make your property stand out from the crowd. It doesn’t have to be landscaped or filled with plants, just neat and tidy. A barbecue and seating is also a nice touch that can make your property more appealing.
How to manage an HMO
If you don’t have much experience managing an HMO, it can feel like a daunting prospect but here’s how you can stay on top of it all:
Finding tenants
If your HMO is brand new, finding tenants will be the first hurdle you’ll come up against. A letting agent can help you with this but there’ll be a cost to do this. The advantage of using an agency is that they can also check your tenants’ right to live in the UK as well as check references.
If you prefer to manage the process yourself, you can of course use traditional means such as local classified ads or use an online house share platform.
If you’ve already got tenants and need to fill an upcoming vacancy, existing tenants could be a good way to source candidates too.
Maintenance
Good maintenance will be a key part in ensuring your HMO runs smoothly – both from a property point of view and making sure that tenants are happy and comfortable.
If you’re a full-time landlord, you might already have a maintenance team in place or at least have a preferred list of tradespeople that you can turn to. If you don’t, or you prefer to outsource your maintenance, a number of firms now offer 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 now means you cannot charge tenants for services like cleaning or gardening. You can of course make a claim for compensation at the end of a tenancy and recoup the cost of cleaning services from their deposit.
Protecting your HMO
Managing your HMO will also mean ensuring you’ve got appropriate landlord insurance which can protect you against unexpected incidents 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.
- Rent guarantee if tenants default on their rent.
- Liability if someone blames you for injury or damage to their property.
When you search for HMO landlord insurance, it’s vital to make sure that 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 increases the likelihood of a claim.
To ensure you get the best value, it’s worth taking the time to compare policies on a like for like basis. Cheap policies might not give you the level of cover you need, have a high excess or include a number of limitations and exclusions.
At Alan Boswell Group, we take a tailored approach and will focus on ensuring your policy fits your specific needs. 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 on 01603 216399.