With rising property prices and increasing demand for affordable rentals, many landlords are looking for ways to maximise their investment returns. One option that has gained popularity is converting a buy-to-let property into a House in Multiple Occupation (HMO). But is it the right move for you?
You can convert a buy-to-let property into an HMO, but it requires meeting local authority regulations, obtaining planning permission if needed, securing an HMO licence, and ensuring compliance with fire safety and building regulations. You may also need an HMO mortgage or bridging loan to finance the conversion.
Read on for Goldmanread’s guide on how to go about converting a buy-to-let into an HMO, the benefits and challenges, and the financing options available.
For personalised advice on HMOs, contact Goldmanread today to discuss your mortgage options and get expert guidance.
Why convert a buy-to-let into an HMO?
Many landlords choose to convert their buy-to-let properties into HMOs because of the potential benefits over traditional rental properties, such as higher yields, more stable income and strong demand.
Higher rental yields
One of the biggest benefits of HMO property investments is the potential for higher rental income. Since multiple tenants each pay their own rent, the total monthly amount collected is usually much higher than what a single-family unit would generate.
More stable rental income
Unlike a standard buy-to-let, which depends on a single tenant or a family, HMO housing spreads the financial risk across multiple unrelated tenants. If one tenant moves out, the remaining tenants still pay their rent, ensuring a more stable cash flow.
Strong tenant demand
HMOs are always in high demand, especially in big cities and university towns. Students, young professionals, and key workers often look for affordable shared accommodation. For landlords, this means fewer void periods and a steady stream of potential tenants.
What are the challenges of converting to an HMO?
While it can be a great investment, being an HMO landlord does come with additional responsibilities and challenges.
- Planning permission – Some local councils have strict permitted development guidelines, meaning you may need to obtain permission before converting a property.
- HMO licensing requirements – Generally, HMOs require a licence from the local council if they house five or more tenants from more than one household.
- More hands-on property management – Managing an HMO is more involved than a standard buy-to-let. Landlords need to make sure the property meets strict fire regulations, maintain communal areas, and manage multiple tenants. Some landlords prefer to use a letting agency that specialises in HMOs to handle the extra work.
- Funding – One of the biggest challenges landlords face when converting a buy-to-let into an HMO is securing the necessary funds. Many landlords use bridging loans to fund renovation before refinancing with a mortgage.
Can you use buy-to-let a mortgage for HMO?
In most cases, a standard buy-to-let mortgage won’t be suitable for an HMO property. Many lenders have specific requirements and restrictions for properties rented to multiple tenants who are not from the same household.
If you plan to convert your buy-to-let into an HMO, you may need to switch to an HMO mortgage, which is specifically designed for multiple occupation properties. Some landlords also use bridging loans to cover the cost of conversion before refinancing with an HMO mortgage.
Speaking to a mortgage broker can help you navigate the best financing options for your situation.
Steps to an HMO conversion
1. Check local regulations
Before starting any conversion work, research your local planning authority’s HMO rules. Councils have different regulations regarding planning permission, fire safety, and council tax. You may also need to submit detailed HMO conversion plans for approval.
2. Property assessment
Not all properties are suitable for an HMO conversion. The property must meet legal requirements, such as providing enough communal areas, such as a kitchen and living room.
It must also comply with minimum room sizes for each tenant’s sleeping area. Smaller HMOs (three or more tenants) have different requirements from larger HMOs (five or more tenants), so check the local council’s guidelines.
3. Obtain planning permission
If your property is in an area with an Article 4 Direction or if you plan to make structural changes, you may need to apply for planning permission. Check your local council’s HMO conversion guide for specific rules.
4. Secure funding
You may need a bridging loan to fund renovations before switching to an HMO mortgage. Specialist lenders offer mortgages tailored to HMOs, so it’s worth getting independent advice from a mortgage broker on the best option for your investment.
5. Comply with building regulations
HMOs must comply with strict building and fire safety regulations.
This includes:
- A valid gas safety certificate for all gas appliances.
- Working smoke alarms and carbon monoxide detectors.
- Fire doors installed in the appropriate areas.
- Clear escape routes and adherence to fire safety regulations.
6. Get an HMO license
Most councils require landlords to obtain an HMO licence if their property will house more than five unrelated tenants. This ensures the property meets health and safety standards, including minimum room sizes and management responsibilities. A council inspection may be required before the licence is granted.
7. Arrange HMO insurance
Standard landlord insurance won’t cover an HMO. You’ll need specialist HMO insurance to protect your investment against potential financial setbacks, including property damage, liability risks, and loss of rental income.
8. Find tenants
Once your HMO conversion is complete, it’s time to find tenants. When deciding on the type of HMO tenant, consider factors like location, demand, and the type of renters best suited for the property, such as students, professionals, or key workers, to ensure a stable and harmonious living environment.
Many landlords use tenant-finding services that specialise in HMOs or advertise on flatshare sites like SpareRoom.
Before advertising, you will need to decide how much rent to charge. Research local market rates, consider the property’s size, location, and amenities, and factor in utility costs and management fees to ensure your HMO investment is profitable while remaining competitive.
Your HMO tenancy agreement should clearly outline tenant responsibilities, rent payment terms, house rules, maintenance duties, and compliance with fire and safety regulations. Ensure your agreements meet legal requirements and protect both you and your tenants.
Need a mortgage for your HMO property?
If you’re thinking about converting a buy-to-let into an HMO, securing the right mortgage is key. Many landlords struggle to find specialist lenders who understand HMO property investments. At Goldmanread, we provide expert advice on HMO mortgages and can guide you through the entire process – from assessing your property’s suitability to making sure you comply with the Housing Act.
Get in touch with us today to explore your mortgage options and find out how we can help make your HMO investment a success.
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