Risks of an HMO and how to avoid them
HMO risks include maintenance costs, tenant disputes, and regulatory compliance
The up-front and ongoing costs of an HMO versus a single-let property are higher, so there could be more of your own capital at stake. Then, because there’s additional legislation governing HMOs, the risk of falling foul of the law and being subject to heavy fines is increased.
And with multiple separate households living in one property:
There’s likely to be more wear and tear
There’s a greater risk of damage
The risk of fire is elevated
Local councils may impose additional licensing requirements that may impact profitability
Top tip: Specialist HMO insurance can help protect you against the financial losses associated with these risks.
Making sure that you have comprehensive landlord insurance, tailored to HMO properties, is key to reducing risk.
Be aware that there are a limited number of providers that will cover you for an HMO, so you’ll need to find a specialist insurer.
"While standard landlord insurance will provide cover for a property let under a single tenancy agreement, our HMO insurance cover caters for HMOs or ‘house shares’, where three or more tenants from different households rent out a property and share facilities. Our policy covers all HMOs, from small HMOs and student accommodation to large HMOs, and multiple properties can be included under a single policy.
HMOs are subject to more rigorous legal requirements than standard rental properties, and they are sometimes seen as higher risk. This places more responsibility on landlords and means a tailored HMO policy is needed to provide the right cover. At Total Landlord, we recognise that some of the risks associated with HMO properties are no greater than a single occupancy property. As such, we’ve negotiated preferential HMO insurance rates providing that facilities such as kitchen and bathrooms are shared by all occupants and that there is no cooking in the rooms."
As well as being seen as higher risk and subject to more regulations than standard rental properties, there are differences between a normal landlord insurance policy and an HMO landlord insurance policy when it comes to claims.
One example of this is loss of rent. Emma Bracchi, senior Claims Technician at Total Landlord, explains.
“When you let a property as a single let, under a single tenancy agreement – for example to one person, or a family – the impact of something going wrong in the property is different to when this happens with an HMO. For example, if you had a situation where there was a leak in one of the bedrooms in a single let property causing the ceiling to fall down, and the tenants wanted to move out while the repairs were being done, the insurer would not be required to consider any loss of rent cover, as the property would still be deemed ‘tenantable’ (fit for occupation by a tenant)."
Although the tenant would be inconvenienced, there would usually be other rooms that the tenant could sleep in while the ceiling was being repaired. However, if this scenario happened in an HMO, and the ceiling fell down in one of the tenant’s bedrooms, the tenant may need to move out as that one room would be their whole living space. If there was a spare or vacant room in the property, the landlord could arrange for the tenant to use that, but if all the rooms were let on individual ASTs, the tenant would have to temporarily move out and the insurers would need to agree the loss of rent while the repairs were being carried out. This is an example of where the cover differs between a single let and an HMO property, and why it is important to make sure you have specialised HMO landlord insurance.”
Find out more about the comprehensive cover offered by our specialised HMO and student landlord insurance.
Understanding what insurance you need to meet your unique needs can be complicated, but our team will be able to help guide you.
You can contact them directly by calling 0800 634 3880 or email enquiries@totallandlordinsurance.co.uk or get a quote online
And it’s worth reminding your tenants, in writing, that while your insurance will cover accidental damage to the property and furnishings that you have provided, they are responsible for the cover of their own possessions.
For more information on how you can minimise your risks as an HMO landlord by making sure you have the best landlord insurance for your needs, check out our guide to finding the best landlord insurance for you
For a single-let rental property, there are a huge number of buy-to-let mortgage products to choose from.
However, if you’re buying an HMO – whether that’s an existing multi-let or a property you’re planning to convert to an HMO - you’ll need a specialist mortgage, which only a limited number of lenders offer.
Be aware that if you have a mortgage that does not permit HMO letting, you may find yourself in difficulty – for example, the lender may insist on immediate repayment of the loan.
So it’s worth finding an independent mortgage broker who specialises in the HMO market and can help you find the most appropriate deal.
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