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(Free-Press-Release.com) November 6, 2010 -- Landlords of H.M.O. (House of Multiple Occupancy) are preparing themselves for demand to surge in response to the actions taken by the government in the Comprehensive Spending Review. Under the new guidelines, set to take effect from April 2011, the maximum benefit limits will be set at £250 per week for a 1 bedroom property moving up to £400 a week for properties with 4 or more bedrooms. The anticipation is therefore that this will lead to a lot of people moving into bed-sit type properties or house-sharing.

The benefits to landlords can be huge in terms of the rental yields achieved, with 10-12% not being uncommon (4%-6% would be more the norm for a London-based single occupancy let), so it’s understandable why they are attractive. However as with all these things there are potential pitfalls that any prospective landlords need to be aware of.

Definition:
A House in Multiple Occupation is defined as a ‘house which is occupied by persons who do not form a single household’. The easiest way to imagine this is perhaps a ‘student let’ or a property setup which has shared communal areas, but the occupants have been brought together for reasons other than being a family; cheap accommodation, study, etc. Typically the tell tale sign for any surveyor is to have locks on the individual doors.

Due to the cost of occupying a single dwelling and also there not being an abundance of this type of property, premiums can be extremely high, even though in essence it is a studio with shared amenities.

Licensing:
HMO’s have to be licensed if they have 5 or more occupants, forming 2 or more households, and are 3 storey or more. The majority of London-based HMO’s do not meet this in terms of the height, but that doesn’t mean they are exempt and normally each borough will have different criteria that needs to be met. Typically if there are more than 4 bedrooms in the property it is seen as a property that could have potential for HMO, so clients need to check with the local council as to the requirements they’ll have to meet.

How easy are they to finance?

They are more difficult to finance than single unit buy-to-let properties but the rates and fees are in line with the rest of the market so you are not paying commercial borrowing rates. The main difference is the deposit you will be expected to put in, which is normally 35%, and the bank will certainly be looking for at least some previous BTL experience. That said with the changes in legislation you may find more lenders enter the market and therefore completion increase, and criteria change.

Tenant turnover is high in this sector but the rewards can be huge and we’ve seen many clients cash in on properties that they are planning to live in further down the line themselves and are waiting for planning permission (large residential property that is going to be converted back to a single residence for instance). Or they are needing to save the money to pay for the refurbishment work before they move in. With mortgage rates starting at 4% and returns of (potentially) 10%-12%, it is certainly a relatively straightforward way to earn decent returns.

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