What to Consider When Investing in an HMO Property

by Rizwan Osman on 7th March 2022

Demand for affordable housing in London is higher than ever, and Houses in Multiple Occupation (HMOs) offer a more affordable housing alternative to tenants. For investors, there is an awareness of the benefits of investing in an HMO property, perhaps as part of a more diverse portfolio, as monthly rental yields can be high.

HMO Property

According to research from Mortgages for Business, in 2017 the best buy-to-let yields came from HMO properties, with average yields of 8.9%. HMOs have become more popular in recent years, partly due to the higher monthly yields, but also as consequence of a growing awareness of the benefits of a diversified portfolio.

If you’re exploring the possibilities of investing in an HMO property and need a little more guidance as to what to consider before either purchasing an HMO or converting an existing property into an HMO, we’ve put forward some pointers for landlords and investors.

Purchasing an HMO

It can be harder to secure a mortgage for an HMO than for a standard buy-to-let, especially for those landlords who are buying their first HMO. You may have to raise a higher deposit before acquiring finance, and higher interest rate charges may apply. Our advice is to research the HMO mortgage market and speak to a mortgage adviser.

It is also worth noting that capital growth can be lower on an HMO than on a standard buy-to-let, and they are generally more expensive to maintain. You can also expect higher property insurance costs. Before investing in an HMO, you should do your research and weigh up the potential costs involved.

Converting an existing property into an HMO

You may require planning permission to convert an existing property into an HMO, so always check with the local authority. Also check whether there is a call for HMOs in the area you have your sights on. Is the local market saturated with HMOs already? Or perhaps there is a demand for more affordable housing? Always do your market research and seek advice before converting an existing property.

Regulations and rules affecting HMOs

HMOs are subject to a lot of regulation. For example, you need a licence to rent out a large HMO, and each HMO property you own will require a separate licence. You can be fined for letting out an unlicensed HMO.

There are rules and regulations surrounding fire safety, gas safety, smoke alarms and communal facilities in HMOs, while a landlord will also have to oversee ongoing maintenance, which tends to be more expensive with an HMO. There may be more repair and maintenance issue, and the local council is responsible for enforcing HMO standards.

Right to Rent checks also need to be carried out, and with an HMO this will be more time-consuming, as you are letting to more tenants.

HMO rules for landlords

In Wandsworth an HMO license is required if the property has five or more occupiers comprising two or more separate households and some or all of the occupants share amenities such as bathrooms, toilets or cooking facilities. You can arrange for a licence on the Wandsworth Council website.

If you’re looking to rent out a property in Tooting or the surrounding areas, get in touch for more help.