At Vickery Holman we undertake valuations of HMO properties for loan security purposes whether already existing or for development appraisals. We also value for investors and asset portfolios.
What are HMOs?
HMO or House of Multiple Occupation is a term that is used with a specific form of residential property. The term HMO applies when you have at least three tenants forming one or more households and where these tenants share either a toilet, bathroom or kitchen. The term ‘household’ applies to a family, a cohabiting couple or a separate individual. HMOs are also being designated as ‘co-living’ properties but they are classified as HMOs under planning and licencing; the new term has become common where it is felt that there is a stigma attached to HMOs.
Use Class of HMO properties
Standard residential property falls under C3 use class and are expected to be for a single household and extended family. An HMO however can fall under C4 or Sui Generis use class.
For HMOs with three to six unrelated individuals the property falls under C4 and this can be achieved through Permitted Development (PD) rights. However, in some places an Article 4 Direction has been imposed by the Local Authority which removes the PD rights and means that for conversion to C4 the property owner would be required to make a full planning application.
Within the South West the following areas have Article 4 Directions:
- Bath
- Bournemouth
- Bristol
- Cornwall
- Exeter
- Greater Yarmouth
- Plymouth
- Somerset
For HMOs with seven or more unrelated individuals the property would fall in Sui Generis (use class of its own) and a full planning application would be required for the change of use from C3.
About HMOs
HMOs come in many forms and offerings, with the most common and most well-known being utilised for students at university. These properties – historically known as house shares – can have all en-suite bedrooms, a mix of en-suite or shared bathrooms or all shared bathrooms, with a kitchen/living offering utilised by all tenants. The tenants have individual Assured Shorthold Tenancies (ASTs) for their rooms and the monthly rent may include all bills; however, there are still many that exclude these. The ASTs tend to be for a fixed period of 48 weeks to allow for the property to be empty for one month to allow for maintenance works etc.
Professional HMOs are also now common. These tend to have a similar set up to student HMOs but commonly have all bills included, including council tax naming each resident to allow for voting rights (where applicable). These properties tend to offer six or 12-month ASTs which allow for periodic tenancies thereafter and annual rent reviews.
HMOs – no matter their size – remain residential in nature and are therefore subject to council tax and not business rates. From 1 December 2023 all HMOs in England are to be valued as a single property for council tax purposes. Students at university are council tax exempt.
Some HMOs require licencing. Any HMO with five or more tenants will require a licence which is applied for through the local council. An HMO with three to four tenants may require a licence but this is dependent on the local council and property set up. Once a licence is achieved it is valid for five years and is not transferrable at sale.
Note of Caution
Caution should be taken by investors or developers as HMOs are generally advertised by bedroom number – i.e. a five-bedroom HMO. However, this five-bedroom HMO could be licenced for ten tenants. This is a clarification that must be made as a five-bedroom HMO could be a C4 property having five tenants or a Sui Generis property with ten tenants.
HMO Requirement
HMOs have very specific requirements when it comes to room sizes and offerings within the property and these sizes can determine the tenant numbers.
Bedrooms for example must be:
- 4.64 sqm for a single occupant under ten years of age
- 6.51 sqm for a single person over ten years of age
- 10.22 sqm for two people over ten years of age
Attic bedrooms have further requirements; ceiling heights are generally required to be 2.3m but in attic bedrooms they need to be at least 2.14m in more than 75% of the room.
Kitchens also require:
- A minimum of 7 sqm for up to five tenants
- A further 1 sqm up to a maximum of 10 sqm for every tenant thereafter
- For 11 or more tenants a 2nd kitchen or additional facilities are required
- Kitchen units should be a minimum of 2m x 0.6m for up to five tenants and 3m x 0.6m for up to ten tenants.
- One fire blanket in kitchen for five tenants
HMOs have specific fire regulations that must be adhered to by Landlords and a Fire Safety Guidance by LACORS is available. For HMOs with up to five tenants a Grade D category LD3 fire alarm system is required, whereas for six to ten tenants a Grade A system is required. Additional requirements include fire doors, room detectors, and smoke and carbon monoxide alarms.
HMOs are an unusual property type with various room requirements, licencing and planning considerations and separate sector yield and incomes. At Vickery Holman we have a team of specialist HMO valuers across all of our South West teams, that understand the nuances of these properties and the market in which they sit.
