Exe Mortgages

Need advice?

get in touch

Call us today

01404 813050

In simple terms, a house in multiple occupation (HMO) is a house share. A property is classed as an HMO when it is rented by three or more individuals who are not classed as a household or family. Amongst other types, HMOs include houses that have been converted into bedsits, converted houses containing one or more flats that are not self-contained i.e. not including a kitchen, bathroom and toilet. For a good summary, the National HMO Network breaks down the definitions down of what constitutes an HMO.

In a university city like Exeter, HMOs such as student lets are common. The University of Exeter has two main campuses in the city: Streatham and St Lukes. There are currently over 20,000 students at the University of Exeter and this number has risen from 17,000 in 2014. This means that every September the population of Exeter increases by 15%, and these extra people have to stay somewhere. The locations of the two campuses, one to the north of the city, one to the east, mean that there are areas that are now predominantly student occupied. HMOs are, therefore, a common sight in parts of Exeter.

Why you should be interested in them?

HMOs can be fantastic investments, particularly in a city such as Exeter or Plymouth. As I indicated above, student numbers tend to rise year-on-year. So, every summer before the start of the University year, a fresh tranche of potential renters descend on the city looking for accommodation.

HMOs can give higher rental yields than standard rented accommodation. The nature of shared occupancy also means that periods of ‘rental void’ are fewer – each room is let individually so there is less chance of everyone moving out at the same time.

There are also some tax advantages to HMOs so it is worth speaking with a reputable accountant to discuss the benefits. We recommend Shane Cann, a director of Bush and Co. Chartered Accountants.

So, in summary, the benefits:

  • A strong appetite for HMOs in a city like Exeter
  • Generally, a higher rental yield
  • A more reliable rental income
  • Potential tax benefits

Why it might not be for you?

Whilst they offer a lot of benefits, HMOs also come with a number of caveats and potential downsides.

The regulations governing HMOs require expert advice to decode. Even the definition of an HMO can be complex, as demonstrated by this flowchart from the Salford City Council website. There are also more planning requirements for HMOs, often if you are considering changing a property from a house typically lived in by a family to an HMO, you will need to apply for planning permission.

In 1 October 2018, required licensing of HMOs was expanded to include landlords who let properties to five or more people, from two separate households, sharing basic amenities. Depending on your location, you may need to apply for a licence – check out this government website to find out more.

Whilst rental income can be more stable, capital growth can occasionally be adversely affected by HMO status. Once a property has been converted to an HMO, the resale market becomes limited.

HMOs can also be expensive to start up. Multiple occupancy houses require more furniture than a conventional house, and HMOs come up additional regulations such as fire and environmental health regulations – meeting these can cost money in terms of renovation and upgrading.

Finally, getting a mortgage for an HMO can be tricky. As this article from which.co.uk suggests, HMO investment is complex and HMO mortgages can be more expensive with higher fees. This is why getting the right advice is crucial.

In conjunction with a good accountant, a whole-of-market mortgage broker such as Exe Mortgages can help guide you through the process and to ensure you get the most suitable deal for your situation. Get in touch for more information about how we can help you navigate your way to investing in an HMO.