The HMO market continues to be a “profitable and attractive” investment option, but landlords are facing an increasing number of challenges due to evolving regulations, according to a leading property expert.

Mish Liyanage, who has more than 20 years of experience in the sector, highlights the growing risks and compliance demands associated with Houses in Multiple Occupation (HMOs).

Mr Liyanage, founder of Mistoria Estate Agents, stated: “While HMOs remain a lucrative investment choice for landlords, they also come with heightened regulatory pressures and risks. With rising fines, stricter enforcement, proposed rental reforms, and varying licensing requirements across cities such as Manchester, Salford, Bolton, and Liverpool—where I am based—landlords must stay up to date to mitigate potential pitfalls and seize opportunities.”

Key Opportunities in the HMO Market

According to Liyanage, some of the most promising opportunities for HMO landlords include:

Strong Rental Yields and Demand

HMOs typically offer higher rental returns compared to standard buy-to-let properties, as landlords can rent rooms individually. This is particularly advantageous in student-dense cities like Salford and Manchester, where demand remains consistently high.

Increasing Tenant Demand

With a shortage of affordable housing and rising rental prices, more tenants—including young professionals and students—are turning to shared accommodation. This ensures landlords can maintain high occupancy levels.

Government Incentives for Energy Efficiency

As regulations push for improved energy efficiency in rental properties, landlords who invest in upgrading their HMOs to meet new EPC (Energy Performance Certificate) standards can enjoy reduced running costs and potentially higher rental income.

Expanding into Emerging Markets

Cities such as Bolton are witnessing growing demand for HMOs, especially with selective licensing schemes designed to enhance housing standards. Investing in these up-and-coming locations before regulations tighten further could offer long-term benefits.

Major Challenges Facing HMO Landlords

Despite the opportunities, there are significant challenges that landlords must navigate, including:

Stricter Licensing and Compliance Requirements

New licensing rules make it more difficult for landlords to operate HMOs without additional compliance measures. For instance:

• Salford has expanded its additional HMO licensing scheme to cover smaller properties with 3-4 bedrooms, whereas previously only HMOs with five or more tenants required a license.
• Liverpool enforces Article 4 planning permissions for new HMOs in most wards.
• Bolton imposes strict room size and space requirements. Failure to comply can result in fines of up to £30,000 per offence, with councils like Salford adopting a zero-tolerance approach to non-compliance.

Increased Fines and Enforcement Actions

Local authorities are cracking down on non-compliant landlords, issuing substantial fines for common breaches such as:

• Lack of proper fire safety measures (e.g., missing fire doors, smoke alarms, self-closers).
• Operating an HMO without the necessary license.
• Poor property management, including unresolved maintenance issues like damp and blocked drains.

The Renters Reform Bill and Its Impact

The proposed Renters Reform Bill, which seeks to abolish Section 21 ‘no-fault’ evictions, may make it harder for landlords to remove problematic tenants. This could be particularly challenging for HMO landlords, who often experience high tenant turnover and potential conflicts. To mitigate risks, landlords must ensure they have strong tenancy agreements and a robust property management strategy in place.

Fire Safety and Regulatory Compliance

Councils are enforcing stringent fire safety regulations, including:

• Installing fire doors with self-closers.
• Ensuring smoke alarms are in all communal areas.
• Conducting monthly property inspections to maintain compliance. Failure to adhere to these regulations can lead to severe penalties and even prosecution.

Navigating Different Regulations Across Cities

With each local council implementing its own set of HMO regulations, landlords operating in multiple cities face additional complexity. For example:

• Salford: Now requires additional HMO licensing for 3-4 bed properties, with rigorous inspections.
• Liverpool: Applies selective licensing in high-risk areas and requires planning permission for new HMOs.
• Bolton: Has detailed minimum room size and amenity requirements that make compliance more challenging.

Mr Liyanage concluded: “The HMO market remains a strong investment option, but landlords must be increasingly diligent in navigating compliance risks, enforcement measures, and licensing changes. Staying informed, ensuring full regulatory compliance, and proactively managing properties will be key to maximising investment returns while avoiding costly pitfalls.”

Notes for editors

Over the last 15 years, The Mistoria Group’s strategic approach has resulted in a varied portfolio encompassing more than 2,000 tenancies, including residential, student, professional HMOs, and commercial properties across eight branches in the North East and West. For more information on property sales, purchases, or joint venture opportunities, contact t: 0800 5003015 or https://mistoriaestateagents.co.uk/team-members/mish-liyanage/