What is the first thing to check when appraising an HMO?

The planning position. An Article 4 direction, or a plan for 7 or more residents, means you need planning permission, and council policies can make that unlikely in some streets. Check licensing and room sizes next, because they set the room count.

Who pays council tax in a room-let HMO?

Where rooms are let individually, the owner is usually liable for council tax rather than the occupiers. For a whole house let on one joint tenancy, the occupiers may be liable instead. The council decides each case, so include council tax in your running costs.

How is gross yield worked out?

Divide the annual rent by the purchase price, or by the total cost including works, and multiply by 100 to give a percentage. Gross yield ignores running costs, so for an HMO always work out net yield as well.

Does Midlands HMO give investment advice?

No. Our appraisals cover property, planning, licensing, layout and build cost information. We do not give financial, tax or legal advice, and we recommend taking regulated advice on finance and tax before you commit to a purchase.

Should I allow for the EPC C target?

It is sensible to consider it. EPC C by 1 October 2030 is confirmed government policy, with a proposed cost cap of £10,000 per property, but legislation is still needed. The current minimum is EPC E.

How to appraise a house for HMO use

What does an HMO appraisal involve?

An HMO appraisal is a structured check of whether a particular house can work as an HMO, and what it will take. It brings together:

the planning position for the address;
the licensing position and the council's standards;
the number of rooms the house can lawfully hold;
the layout and fire safety strategy;
the cost of the building work;
the running costs once it is let;
a way to compare the figures, such as gross and net yield.

This guide covers property, planning, licensing and building information. It is not financial or tax advice. Take regulated advice on finance, tax and whether an investment suits you.

How do I check the planning position?

Start with planning, because it can rule a house out before anything else:

Is there an Article 4 direction? If so, changing a family house into a small HMO for 3 to 6 people needs planning permission instead of being permitted development under Class L.
Will there be 7 or more residents? A large HMO is sui generis and always needs planning permission.
What do the council's HMO policies say? Concentration thresholds and sandwiching rules can make permission unlikely in some streets.
Is the house already an HMO? If so, ask for evidence of its lawful use, such as a planning permission or lawful development certificate, and licensing history.

Our guide to HMO planning and Article 4 explains each route.

How do I check the licensing position?

Find out which licensing schemes cover the address:

an HMO with 5 or more occupiers from 2 or more households needs a mandatory licence;
the council may run an additional scheme covering smaller HMOs, or a selective scheme covering other rented homes;
since 23 December 2024, councils can make schemes of any size without the Secretary of State confirming them.

Then read the council's HMO amenity standards. They set kitchen and bathroom provision and can set higher room sizes than the national minimums, which directly affects the room count. Licence fees are set by each council, and a licence lasts no more than 5 years. Our HMO licensing checker gives a quick first view.

How many rooms can the house hold?

Room count drives the whole appraisal, so measure carefully.

Every bedroom in a licensed HMO must meet the national minimums: 6.51 m² for one person aged over 10 and 10.22 m² for two people aged over 10. Floor under a ceiling lower than 1.5 m does not count.
A room under 4.64 m² cannot be used for sleeping.
Your council may set higher figures, and may expect larger bedrooms where there is no shared living room.
Kitchen and bathroom provision must match the number of occupiers under the council's standards.

Test more than one layout. Sometimes one fewer bedroom avoids the need for an extra bathroom, a larger kitchen or a planning application, and the scheme works better overall. See HMO room sizes.

How do layout and fire safety affect the appraisal?

The fire strategy shapes the layout and the cost. Points to look at on a viewing:

Escape route. Does every bedroom have a route to the outside that can be protected? Inner rooms, where the only way out is through another room, are a common problem.
Storeys. A three-storey house, or a loft conversion that adds a storey, usually needs more protection to the stairs than a two-storey house.
Kitchen position. A kitchen on the escape route may need extra separation.
Construction. Lath and plaster ceilings, open-tread stairs and poor partitions can mean more upgrading.

Fire doors (typically FD30 or FD30S with self-closers) and a mains-wired interlinked alarm system are commonly required, depending on the property's layout, size and fire risk assessment, and the local council's HMO standards. A conversion may also need building regulations approval. See HMO fire safety.

What should I allow for build costs?

Use our typical Midlands guide ranges for October 2026, including VAT where it applies, and confirmed after a survey:

building work per lettable room: light £1,800 to £3,500; standard £5,500 to £9,000; full strip-out £9,000 to £14,000;
en-suite shower room: £4,500 to £7,500 each;
communal kitchen: £7,000 to £13,000;
extra shared bathroom: £5,000 to £9,000;
fire door, supplied and fitted: £450 to £750 each;
fire alarm system: £700 to £1,600 per storey;
loft conversion adding rooms: £38,000 to £60,000.

Council licence fees, planning fees and building control fees are extra. Our guide to HMO conversion costs includes a worked five-room example, and the guide price tool gives a range for your house.

What running costs should an HMO appraisal include?

Running costs are where many appraisals are too optimistic. Allow for:

Council tax. Where rooms are let individually, the owner is usually liable for council tax, not the occupiers.
Utilities and broadband. HMO room rents are commonly let with bills included, so the landlord pays for gas, electricity, water and broadband.
Management. Either your own time or a managing agent's fee. Our management terms are quoted per property.
Voids. Rooms are let on periodic tenancies and tenants can leave on 2 months' notice, so allow for empty rooms and the cost of re-letting.
Maintenance and repairs. Shared kitchens and bathrooms see heavy use. Set aside money for repairs and periodic refurbishment.
Compliance. The annual gas safety check, the EICR at least every 5 years, alarm and emergency lighting servicing, fire risk assessment reviews and licence renewal.
Insurance and finance costs. Take regulated advice on finance.
Future standards. EPC C by 1 October 2030 is confirmed government policy, with a proposed cost cap of £10,000 per property, though legislation is still needed. The Decent Homes Standard is set to apply to private renting from 2035.

What is the difference between gross and net yield?

Yield is a simple way to compare the income from a property with what it costs. Two measures are common:

Gross yield is the annual rent divided by the purchase price, or the total cost including works, multiplied by 100 to give a percentage. It ignores running costs.
Net yield is the annual rent minus the annual running costs, divided by the same price or total cost, multiplied by 100. Because HMO running costs are higher than for a single let, the gap between gross and net yield is usually wider.

Use realistic room rents from current local evidence, and include every running cost listed above. Our HMO yield calculator works through both measures with your own figures. We do not publish rent or yield figures, because they vary by street and change over time.

Yield is not the same as return on the cash you invest, which depends on finance and tax. Take regulated financial and tax advice before you buy.

How should an appraisal allow for future changes and the exit?

An appraisal should look beyond the first year of letting:

Selling. Class L permitted development allows a small HMO (C4) to change back to a family house (C3) without a planning application, as long as it does not create two or more dwellings. That can widen the market when you sell. Class L covers small HMOs only.
Licence renewal. A licence lasts no more than 5 years. The council's standards, or the scheme covering the street, may have changed by the time it is renewed.
Registration. The PRS Database is due to open on 15 December 2026, starting in the West Midlands, subject to Parliament approving the regulations, with the East Midlands expected in early 2027.
Redress. Mandatory membership of a new PRS Landlord Ombudsman is expected in 2028.

Our HMO feasibility appraisals set out the planning route, licensing position, room count and a build cost range for a specific house before you commit. Appraisals are quoted per property.

Sources

This guide explains the rules in England as we understood them in October 2026. It is general information, not legal or financial advice. Check with your council and take professional advice for your own situation.