Is Your Property Let? HMO

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Houses in multiple occupation are more heavily regulated than any other type of let property. A lender cannot rely on an HMO that is not properly licensed and compliant. An unlicensed HMO cannot lawfully be let, tenants can reclaim rent through a rent repayment order, and councils can issue substantial civil penalties or prosecute. If your HMO is already compliant, most of what the lender needs is paperwork you will already hold.

Is it an HMO, and does it need a licence?

A property is an HMO if three or more people from more than one household share a kitchen, bathroom or toilet. In England and Wales, an HMO occupied by five or more people from more than one household needs a mandatory licence. Many councils also run additional licensing for smaller HMOs, so please check with your council.

The lender will need the current licence with its full schedule of conditions, and details of the licence holder and manager. If an application is pending, it will need the council’s acknowledgement. If a licence has been refused or revoked, please speak to us before anything else.

Occupancy and the licence holder

The lender will want to know the maximum number of occupiers permitted under the licence and how many actually live there. It will also want confirmation that no licence holder or manager has had a licence refused or revoked, or received a civil penalty, banning order or conviction for a housing offence.

As with any let property, the lender will need written confirmation that neither you nor anyone connected to you lives at the property or intends to (see our Occupancy guide).

Planning

An HMO licence is not planning permission. A small HMO for three to six people (use class C4) is usually permitted development from a single dwelling, unless the council has made an Article 4 direction. An HMO for seven or more people always needs planning permission. The lender will need the permission, a lawful development certificate, or evidence of at least ten years’ continuous HMO use, together with Building Regulations sign-off for any conversion works.

Fire safety and certificates

Please have the following ready:

• a current fire risk assessment, with evidence that its findings have been actioned;
• test certificates for the fire alarm and emergency lighting;
• a Gas Safety Record dated within the last 12 months;
• a satisfactory Electrical Installation Condition Report dated within the last five years;
• an EPC rated E or above; and
• for buildings built before 2000, an asbestos survey and management plan.

The lender will also want confirmation that kitchens and bathrooms meet the council’s standards for the number of occupiers. In England, every bedroom must meet the minimum room sizes set by the licence conditions.

Occupiers and agreements

The lender will need a signed copy of every room agreement and a schedule of occupiers, showing each person’s agreement, start date, rent, deposit and any arrears. It will also need the deposit protection certificates, prescribed information and, in England, Right to Rent checks.

Rent-to-rent and operators

If someone else runs the HMO under a lease, management agreement or rent-to-rent arrangement, please tell us at the start. The lender will need the head agreement and the operator’s licence, as the licence must be held by whoever is in control of the property. These arrangements affect both the value and the lender’s security.

Insurance and the valuation

Buildings insurance must be on a policy that discloses the HMO use, for the full rebuild value, with the lender’s interest noted. The valuer will need to see every room, so please give occupiers written notice and arrange access.

After completion

The loan agreement will usually require the lender’s consent before you change the number of occupiers or the layout. You will also need to keep the licence, certificates and registrations in date throughout the loan.