HMO Landlords - Buy-To-Let Insurance or Specialist HMO Insurance?

HMO Landlords - Buy-To-Let Insurance or Specialist HMO Insurance?

A lack of affordable accommodation has seen massive demand for Houses of Multiple Occupancy (HMO) across the UK with Local Authorities often keen to assist experienced Landlords in branching into this potentially lucrative area of the property investment market, with typical rental returns over 15% per annum.

However, while yields can be strong, the complex licensing process and other special requirements such as HMO Insurance can be very confusing, which is why it is so essential for Landlords to do their homework.

What is the definition of a House in Multiple Occupation?

Inconsistent licensing requirements for HMOs have made this unclear.

However, in its simplest form, a House in Multiple Occupation is a multiple tenancy property which is let out, or rented, to a least 3 people who are not from one "family" or "household" but share facilities such as a kitchen or bathroom.

In the past house shares were typically occupied by Students, however, we are now seeing a clear shift towards single young professionals who enjoy the independence of their own space, but cannot afford a flat or studio apartment of their own.

What About Licensing?

Licensing requirements for HMO's differ from one local authority to the next, and we would recommend that any Landlord who lets' their property to three unrelated tenants should check whether a formal licence is required.

In England and Wales a property is generally regarded as an HMO for licensing purposes if it is:

  • Rented to 5 or more people who form more than 1 household
  • Is at least 3 storeys high

Scottish rules are much simpler, and a let property is regarded as a House in Multiple Occupancy if it is shared by three or more adults tenants who are unrelated.

More details on licensing can be found in our article on the Key Facts Every Landlord Needs to Know about HMO Insurance and Licensing.

Will My Buy-To-Let Insurance Cover an HMO?

Typically, a standard Landlord Insurance policy will only allow a single tenancy agreement under a minimum six month AST (assured shorthold tenancy agreement).

If your property has multiple tenancy agreements, off the shelf buy-to-let cover will not provide adequate protection, and you should seek specialist cover and advice.

What Other Insurance Pitfalls Should I Look Out For?

Other key areas which will impact an Insurer's acceptance of property cover can include:

#1 Occupation of Tenants

Most Insurers will accept Professionals or Student lets without too many issues.

However, if you let the property to persons under local authority support or asylum seekers, you will find the market to be much more limited.

#2 Length of Tenancy Agreement

As with single agreement properties, HMO Insurers also prefer a minimum of six-month agreements.  

However, more specialist cover is available for short-term contracts or those via council housing departments.

#3 Cooking Facilities

Fire claims are the biggest concern for multi-tenancy insurers.

National fire statistics highlight that you are six times more likely to die in a fire if you live in a House in Multiple Occupation as opposed to a standard family house.  

This risk increases to a staggering sixteen times more if the HMO is three or more storeys high.

With this in mind, it is no surprise that a property which allows cooking in rooms is seen as a red flag for many insurers, particularly if the facilities are not fixed unit kitchenettes.  

If you are designing a conversion to multi-let, it will make more sense to allow separate cooking areas to reduce your exposure.

Don't Let Insurance Worries Put You Off!

While multi-tenanted property cover is more complex, specialist packages are available, which will meet all your requirements.

In the first instance, we would suggest you enlist the services of an expert Broker such as Insync, who can help you through the maze.

FREE Property Insurance

Insync can Compare HMO Insurance packages from Insurers who understand the market.  

Cover is available for all types of tenants, including council support and short-term rentals.  

Insync policies are approved by local authorities for licencing purposes, and we can provide confirmation of cover directly if required.

You can request a quote online, or alternatively, why not book a free review with one of our expert Gurus at a time that suits YOUR diary.