Housing in the private rented sector is in short supply. The simple rules of economics, therefore, are encouraging rents to rise.
Indeed, according to a report in the Guardian newspaper on the 9th of February 2017, average rents are expected to climb by 25% in the next few years – compared to an increase of only 20% in property values.
Landlords have discovered that one way of combating the need for such drastic rent increases is to offer tenants shared accommodation in so-called Houses of Multiple Occupation (HMOs). This is a solution especially popular with tenants, such as students, who are struggling to cope on low incomes.
What is an HMO?
Formal definitions of an HMO are described in detail on the official website, but very simply an HMO is:
a property in which more than five tenants, comprising more than one household live; and
all share a bathroom, toilet or kitchen facilities with the other tenants who live there;
if the HMO is taller than three storeys and houses more than five tenants, again comprising more than one household and sharing bathroom, toilet or kitchen facilities, it is defined as a large HMO.
If you own a large HMO or more than two separate households live there, you need to obtain a special HMO licence from the local authority.
The housing charity Shelter also points out that landlords have additional legal responsibilities and obligations (principally with regard to tenant safety) if they are letting accommodation in an HMO or large HMO.
Briefly, these responsibilities include making sure that:
the property is not overcrowded;
you comply with all relevant fire regulations – including the installation of smoke alarms and CO2 detectors;
an annual Gas Safe certificate is obtained;
electrical inspections are carried out every five years;
shared facilities and communal areas are kept clean and in a good state of repair; and
there are enough rubbish bins and sacks.
Because an HMO or large HMO are special types of let accommodation, specialist HMO insurance is also necessary – especially with respect to your landlord liability responsibilities and duties – as explained in further detail in our guide to insurance for landlords of HMOs.
Clearly, it is inappropriate to arrange the type of home insurance that might be used by an owner occupier if your let property is an HMO, but neither is standard landlord insurance – typically arranged for a completely self-contained dwelling – appropriate.
Indeed, if you relied on either of these types of cover for your HMO, you are likely to find the cover invalid and any claim rejected – instead, you need specialist HMO insurance.
That is simply because the insured risks are different when insurers consider cover for an HMO – risks that are typically considered to be higher, especially when many facilities are shared between several households and the potential for damage to the building or its contents is greater.
Indeed, some insurers may be so risk-averse that they are accustomed to rejecting applications for HMO insurance – or significantly increase the cost of premiums. This is a further reason, of course, for buying your HMO insurance through ourselves here at UKinsuranceNET.