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Renting Rooms – Lodgers vs HMOs
Renting Rooms – Lodgers vs HMOs
30th August 2015
Renting by the room has seen a surge in popularity in recent years as landlords realise that yields for this type of tenancy can be higher than for standard lets.
Young people in particular are being priced out of purchasing their first property, and with rents rising shared housing is one of the few affordable ways to live in a prime location.
If you have a large home or property that you plan to rent, it’s important to understand how you can let out some or all of the property, and what regulations apply.
Taking In Lodgers
Taking in a lodger is an excellent way of earning extra income to help pay your bills if you’ve taken on an expensive property or have other financial commitments.
HMRC allow you to earn up to £7500 per year (£625 per month) tax-free through the Rent-a-Room scheme, and many thousands of households throughout the country earn valuable extra income in this way. If you live near a university, hospital or large employer there’s nearly always good demand for short and medium-term lodging from students and staff.
However the maximum number of non-family lodgers you can have in a private house is two – more than this and your house becomes an HMO (House in Multiple Occupation) and extra rules and regulations apply, as outlined below.
For the purposes of the rules, non-family lodgers are people who aren’t your parents, grandparents, children, grandchildren, step-children, siblings, uncles, aunts, cousins, or foster children.
HMOs (House in Multiple Occupation)
A shared property becomes an HMO when a landlord rents out part of his property but the above conditions are not met. It applies to both bedsit-style housing and shared housing where a group of people who are not related share a house or flat, and there is 'material sharing' of facilities such as bathrooms or kitchens.
Commonly found HMOs would be:
A house split into bedsits where the tenants have exclusive use of their rooms but share a kitchen or bathroom
A house or flat-share with 3 or more tenants who are not related to each other
A home owner who has more than 2 lodgers who are not related and not the owner’s family members
Three or more students sharing a house where they have exclusive use of the whole house
There are some notable exemptions from the definition of an HMO, including student halls of residence (where the universities are specified as exempt by order), care homes, bail hostels, and buildings managed or owned by a public body, such as the police, the NHS or an LHA or Registered Social Landlord.
If your property falls into the category of being an HMO then you will need to install additional fire safety measures, which can be expensive for older buildings or those with difficult access. If you have an HMO of three or more storeys with five or more people in it, you will also need to obtain an HMO licence and pay an annual fee, and you may find those fire safety provisions even more onerous.
In fact in many parts of the country now, councils are insisting on licensing for all HMOs in certain problem areas.
The term “house” in House in Multiple Occupation is not to be taken literally, it can be a flat, barn, converted church, old mansion - what matters is how many people live there, and what relation they are to each other.
The fire safety regulations for HMOs are as complicated as you might expect (aren’t they always) but more information for the Farnborough area can be found here.