Risks & Reward – Property Expert On The Challenges And Opportunities That Exist In The “Lucrative” Hmo Market

The HMO market remains “profitable and lucrative” but landlords now face a challenging balancing act in dealing with new regulations, a leading expert has said.

Mish Liyanage – who has over 20 years experience in the sector – says there are increasing risks and regulatory challenges when dealing with Houses in Multiple Occupation (HMO).

Mr Liyanage, the founder of Mistoria Estate Agents, said: ““The market remains a lucrative investment for landlords, but it also comes with increasing risks and regulatory challenges. With rising fines, enhanced enforcement, rent reform proposals, and differing licensing schemes across cities like Manchester, Salford, Bolton, and Liverpool, where I am based, all landlords must stay informed to mitigate risks and maximise opportunities.

Outlining the biggest opportunities which he believes exist for HMO landlords, Mr LIyanage pinpointed the following:

High Rental Yields and Demand

HMO properties continue to offer higher rental yields than standard buy-to-let properties due to the ability to let rooms individually. This is particularly beneficial in student-heavy cities like Salford and Manchester, where demand remains strong.

Growing Tenant Demand

With a shortage of affordable housing and increasing rental costs, more tenants, including young professionals and students, are opting for shared accommodation. This presents a strong opportunity for landlords to maintain full occupancy.

Government Incentives for Energy-Efficient HMOs

There is a push towards improving energy efficiency in rental properties. While it requires upfront investment, landlords who upgrade properties to meet new EPC (Energy Performance Certificate) standards can benefit from lower operational costs and potentially higher rental rates.

Expansion into Emerging Markets

Cities like Bolton are seeing an increase in demand for HMOs, particularly with selective licensing schemes aimed at improving housing standards. Investing in up-and-coming areas before regulations become more stringent could provide long-term advantages.

Highlighting the biggest challenges he said:

Increased Compliance and Licensing Risks

HMO landlords face stricter regulations, particularly around additional HMO licensing schemes. Cities such as Salford have expanded their licensing requirements, covering 3 and 4-bedroom HMOs, whereas previously, only properties with five or more tenants needed mandatory licensing.Liverpool requires Article 4 planning permissions for new HMOs in most wards. Bolton has detailed minimum room size requirements and space standards. Landlords failing to meet these licensing rules risk fines of up to £30,000 per offence and salford council adopts a zero tolerance policy when it comes compliance

Heavy Fines and Enforcement

Local councils are increasing their enforcement efforts, issuing large fines for non-compliance. Common violations leading to fines include:

• Poor fire safety (missing fire doors, smoke alarms, self-closers)
• Unlicensed operation of HMOs
• Lack of proper property management (blocked drains, damp, poor maintenance)

Renters Reform Bill and its impact

The Renters Reform Bill, which aims to abolish Section 21 ‘no-fault’ evictions, could make it harder for landlords to remove problematic tenants. This is a significant challenge for HMO landlords, who often deal with high tenant turnover and potential tenant conflicts. Landlords will need solid tenancy agreements and robust property management to handle disputes legally.

Compliance with Fire and Safety Regulations

Councils are enforcing strict fire safety compliance, requiring:

• Properly fitted fire doors with self-closers
• Smoke alarms in all communal areas.
• Monthly inspections to ensure compliance.

Failure to comply with these regulations has led to landlords being issued civil penalties and potential prosecution.

Conflicting Regulations Between Cities

Different councils have varied HMO regulations, making it challenging for landlords operating across multiple cities. For example:

• Salford: Requires additional HMO licensing for smaller HMOs 3 and 4 bed HMOs and conducts rigorous inspections.
• Liverpool: Enforces selective licensing in high-risk areas, requiring extensive planning permissions for new HMOs.
• Bolton: Has strict space and amenity requirements, making compliance complex.

Mr Liyanage added: “The HMO market remains profitable, but increasing compliance risks, enforcement fines, and licensing requirements mean landlords must be more diligent than ever. By staying informed, improving compliance, and managing properties proactively, HMO landlords can navigate these challenges while maximizing investment returns.”

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