Many property enthusiasts look at converting buildings to HMOs as they can bring high capital growth. With both property and rental prices increasing, there is an affordability gap where people don’t have the funds to purchase or rent larger accommodation by themselves. This is where shared houses and flats are a great solution until their situation changes. In this post, we will define HMO, the fundamentals of HMOs and how to find them.
What is a HMO?
HMO stands for House of Multiple Occupancy. According to the Housing Act 2004, a HMO is defined as “an entire house or flat, which is let to three or more tenants who are not from the same household”. If we have two friends living together, this won’t be classed as a HMO. However, as soon as you have a third friend join them, this will make it a HMO.
If you have two couples living together, so that would be four people or 2 families, this will still not be classed as a HMO, as there are only 2 different households. You can have a few people living in a property without being a HMO, but as soon as a third household is joined, this will then become a HMO. The key here is the number 3. Once a third household is joined, a HMO is created. Many people get confused with this and think that HMOs starts at either 5 or 6 people.
Why do we need HMOs?
People are becoming used to an all-inclusive, non-committal subscription model in most areas of life – from their online world to their gym memberships – so shorter-term all-inclusive rent is becoming more and more popular. In the current climate many of us are spending much more time at home and people want somewhere safe, secure and comfortable, somewhere that’s nice to be, space to cook and some social space to meet other people.
But how do we find HMOs that gives the maximum chance for profit? Read on…
What type of licence do you need for a HMO?
There are 2 different types of licensing when it comes to HMOs:
- at a national level
- at a local level
The national licensing scheme comes from the government and is called a mandatory licencing. The local level licence is when a council opts to bring in additional licencing. From October 2018 onwards, mandatory licensing has meant that any property with five or more unrelated people requires a licence. It used to be the case that the property had to have 3 storeys or more, but this was tightened up in 2018 to include all properties. To get the license, you will need to apply as soon as you put the 5th person in, most councils will allow you to operate whilst the application is going through.
Additional licensing has been brought in by certain councils. This means that they are more concerned about the standards of the HMOs in their town. This is done by reducing the council’s threshold for the number of unconnected people in a property that require a licence. This can go down from five to four, or even three. So, if the council has an additional licensing scheme for three or more unconnected people, every single HMO will require a licence!
Each council has a set of standards that you need to comply with, which you can find on their website, including minimum amenity space, washing and cooking facility requirements and minimum room sizes. To begin with, the most important ones to note are the national minimum room sizes. If you are renting to adults, then the bedroom sizes are as follows:
- Single occupancy: 6.51m2
- Double occupancy 10.22m2
These sizes do not include:
- En-suites, as they are deemed to be washing facilities
- Any floor area where the height is less than 1.5m
- Any space that is deemed to be unusable corridor
- Chimney breasts
But they do include:
- Built-in wardrobes
In order to get your licence, you must be a fit and proper person – i.e. not be a dodgy criminal! You will need to pay for it and that could be over £1,000, but it will last you 5 years.
Do you need planning permission to create a HMO?
The answer to this question for England is yes. You can’t just do it. This is because HMOs have their own use class and to change the use of any building or piece of land in the UK requires planning permission. Some HMOs have permitted development rights and I’ll cover these below.
The first thing we need to be aware of is how HMOs are categorised. They are defined as residential dwellings under Part C of the Use Classes Order as follows:
Class C3 – Dwelling houses
- Use as a dwelling house (whether or not as a sole or main residence) by:
(a) a single person or by people to be regarded as forming a single household;
(b) not more than six residents living together as a single household where care is provided for residents; or
(c) not more than six residents living together as a single household where no care is provided to residents (other than a use within Class C4).
Class C4 – Houses in multiple occupation (HMO)
- Use of a dwelling house by not more than six residents as a “house in multiple occupations”.
Looking at these definitions, let’s focus on the C3 use. This is a residential dwelling house, your own home occupied by a family, is clearly a C3. The property will be C3 when we put in a couple of tenants, but when we put in our third tenant, we’ve created an HMO. If you look back at our definition of what an HMO is, it’s three unconnected people. So, what we’ve done is changed the use from a C3 dwelling house to the C4 small HMO. The C4 use class allows for between three and six unconnected people, so you can move between three people, four people, five people, six people as much as you like. But as soon as you drop back to two people, it automatically jumps back to a C3 house.
What is Article 4 Direction?
The change of use from C3 to C4 is a permitted development right that has been given by the government (called Class L) and in most of the country you can go back and forth without any issues. However, if a council brings in something called an article 4 direction, it then prohibits the change of use from C3 to C4 without full planning permission. It doesn’t mean that it won’t be granted, but it does mean that it’s harder to get. But for now, just be aware that you can’t automatically do it, so you want to be checking in your area whether you have an article 4 direction that prevents the change of use from C3 to C4 for HMOs.
What are Sui Generis HMOs?
I call Sui Generis the dustbin of planning classes because it’s where everything else that wasn’t defined in planning law has ended up! This is where large HMOs (7+ people) have ended up, because they are not defined in law. So, when we apply for planning permission for seven or eight or nine people, we are applying for sui generis planning permission. This is a full planning application, every single time. Like the article 4 direction, it doesn’t mean that planning won’t be approved, as long as we know how to follow the rules and play the game. In some areas in fact, it’s quite easy to get planning for sui generis HMOs because they don’t have a policy, so it’s hard for them to find reasons for refusal.
What do I need to know about HMO Planning Permission?
In summary, when it comes to HMO planning, we just need to be aware how many people are intended to live in the property. And this is a key point. You can have an 8-bedroom property that only has six people living in it and you haven’t broken planning rules. You can create the space and do the works without the full planning in place because it’s all about who is living in the property. So, you can have six people without any issues living in that property, but as soon as you put the seventh or the eighth person in, that’s when you start to breach planning.
The key areas to check if you’ll get planning permission:
- Parking – is there enough parking provision at the property? Does the council have a policy on this? Off-road is preferable to demonstrate that the potential increase in car parking is negligible.
- Cycle storage – do you have covered and secure provision of storage for bikes? At the rear preferably – so side or rear access is ideal.
- Bin storage – do you have storage for bins? At the rear preferably – so again, side or rear access is ideal.
- Concentration limits – Are there too many HMOs in your local area already? If so, it’s highly unlikely that you’ll get permission. The definition of “too many” will be provided by the council. An example of this would be that the council will not allow more than 10% of properties to be HMOs within a 50m radius. So, if you are potential HMO number 11 with 100 properties in a 50m radius, then it will be a big, NO, from the council!
Where can I find an HMO deal?
The quickest and easiest way to find HMO opportunities is to use Nimbus Maps. Here are a few top tips to consider:
- Look for properties that have the potential to create an uplift.
- Purchase an existing HMO and modernise.
- Convert a commercial building to a HMO.
Generally, with HMOs, we look to maximise the space by extending into the back and into the roof space. With the OS Master Map in Nimbus Maps, you can see the true outline of the property, helping you to understand the density of the site and see if there is space to extend. You can also compare other nearby properties where additional work has already been carried out, so you can gather what is acceptable in terms of planning. Once you have found a site, you want to know how many floors exist so you can gather how many possible rooms you may be able to get. Again, using Nimbus Maps, you can use the street view to understand how many floors exist.
Another great way to quickly identify HMO is by using the HMO overlay in Nimbus Maps. This is extremely helpful to understand where they are located and understand the concentration level within a certain radius. Generally, a nationally recognised rule is 10% within a 50-meter radius, but this also depends on the local council and if they have a different approach to HMOs. Using this overlay you can gage the HMO market, where the current demand is and therefore a good location for possibly more HMO’s.
Red dots indicating HMO in Nimbus Maps
I hope you now have a better understanding of what an HMO is, its fundamentals and how to find them. If you want to know more about HMOs, here are some fantastic webinars where the co-founder of Nimbus Maps and the founder of The HMO platform share their experience and knowledge on HMO’s.
Check out these webinars to learn more about maximising HMOs!
If you would like to see how the HMO overlay can help you, book your free demo with one of our experts.