HMOs have been making headlines for the wrong reasons lately. A recent BBC documentary exposed a number of unlicensed properties in London, showing severe overcrowding and poor living conditions.
The investigation suggested that, in some London boroughs, illegal HMOs outnumber licensed ones. In one part of Newham, there may be over 700 illegal HMOs but only 75 licensed; Tower Hamlets could have around 500 illegal versus 50 licensed; and Old Kent Road in Southwark potentially has more than 300 illegal against 232 licensed properties.
These rogue landlords risk damaging the sector’s reputation, but HMOs remain an important and practical form of accommodation for many – from students and hospital staff to young professionals. When delivered to a high standard and in line with local licensing rules, HMOs can offer safe, affordable housing while enhancing the sector’s image.
For landlords, HMOs can deliver higher yields than single-let properties. Letting rooms individually spreads income risk – if one tenant leaves or defaults, others continue to pay rent – and a broad tenant base can help sustain occupancy year-round.
Know the rules
In England and Wales, an HMO is generally a property let to at least three people from more than one household who share facilities such as a kitchen or bathroom. Large HMOs – housing five or more people – usually require a mandatory licence, and many councils operate additional schemes for smaller properties.
Licences ensure compliance with space, safety, and management standards, and protect investors from fines or reputational harm. Crucially, licensing is separate from planning – and in areas with Article 4 Directions, landlords may need planning permission to convert a property to an HMO.
Financing conversions
Many successful HMOs begin life as standard houses, later refurbished and converted. Bridging finance can be a flexible way to fund the purchase and works, with the option to refinance onto a long-term buy-to-let mortgage once the property meets licensing and quality requirements.
Investors who refurbish to a high standard can set themselves apart in the market. Quality HMOs with modern kitchens and bathrooms, soundproofing, well-designed communal areas, and energy-efficient features tend to attract a wider pool of tenants and achieve higher occupancy rates. They can also help secure longer tenancies, reduce turnover and void periods, and encourage tenants to treat the property as a home rather than just temporary accommodation.
Refurbishing to exceed minimum licensing requirements also helps future-proof the property against tightening regulations. For example, investing in superior fire safety measures, generous room sizes, and improved insulation can not only make the property more appealing but also reduce the risk of costly upgrades later. In an increasingly competitive rental market, high-quality finish and compliance can be the difference between a property that struggles to fill rooms and one that commands strong rents and a waiting list.
A sustainable opportunity
Negative headlines shouldn’t deter responsible investors. Well-managed, fully compliant HMOs meet a vital housing need and can deliver strong, sustainable returns. With thorough due diligence, good design, and the right funding strategy, landlords can create homes that tenants value – and that help raise the standing of the HMO sector as a whole.
Anna Lewis, Commercial Director at Castle Trust Bank
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