Houses in multiple occupation

An HMO is a property let room by room to people who are not one household, sharing a kitchen or bathroom. It is the most reliable way to raise the income from a single London house, and the one where the paperwork decides whether you have a business or a problem.

London Victorian terraced house used as an HMO

When a property becomes an HMO

In England, an HMO with five or more occupants forming two or more households, sharing amenities, needs a mandatory licence from the council. Smaller HMOs can still need a licence under additional licensing schemes, and some boroughs licence single lets under selective licensing. In London, a large number of boroughs run additional schemes covering three and four person HMOs.

Translation: the same house can be licensable in one borough and not in the next. Check the council before you check the property.

Licensing, planning and standards are three different things

Licensing is the council’s permission to operate an HMO. It comes with conditions, a fit and proper person test, and a fee per property.
Planning is the use class question. In England, a small HMO of three to six people sits in class C4. Many London boroughs have an Article 4 direction removing the permitted development right to change from a family home to a small HMO, so you need planning permission. Larger HMOs fall outside C4 and need permission regardless.
Standards are the council’s housing standards: minimum room sizes, kitchen and bathroom provision, fire precautions, sound insulation in some cases. They vary by borough and they are enforced.

Buying a property that is already used as an HMO does not transfer permission automatically, and an existing licence does not transfer with the building.

The compliance list

Annual gas safety certificate from a Gas Safe registered engineer, for every appliance
Electrical installation condition report, tested and remedied on the cycle the regulations require
Fire risk assessment, plus the detection, alarms and fire doors your council’s standards require
Smoke and heat detection maintained and tested, with a written record
Emergency lighting where the standards call for it
Portable appliance testing for anything you supply
Legionella risk assessment and a written control scheme
Energy performance certificate at the required rating before letting
Deposit protection and prescribed information if you are granting assured shorthold tenancies
Right to rent checks, and a proper tenancy or licence agreement drafted for an HMO
Bins, bin stores and the waste arrangements the council expects
The Management of Houses in Multiple Occupation regulations, which apply to how the property is run day to day

How the money works

Room rate multiplied by rooms, adjusted for voids and for the cost of the common parts. Then subtract the real costs: mortgage, licensing fees, insurance written for HMOs, utilities if included, cleaning of shared areas, maintenance, management, accountancy, and the refurbishment that HMOs consume faster than a family home.

The number that matters is net income per room, per month, after voids. A five room house at high rents with two rooms empty and a licensing condition outstanding is worse than a four room house that runs cleanly.

Where HMO plans usually break

Buying in an Article 4 area without planning permission, then finding out at licensing stage
Budgeting for furniture instead of budgeting for the fire doors, detection and sound insulation
Assuming an existing licence transfers with the purchase
Underestimating the refurbishment a tired house needs to meet amenity standards
Ignoring that the neighbours, the bin store and the parking are part of the job
Letting rooms to people who do not suit shared living, then managing the fallout