If you own an HMO, then you will need to take extra caution with your insurance, over and above that of a single occupancy property.
The UK Government deem a property to be an HMO if at least three tenants live there, forming two households and you share a bathroom, toilet or kitchen facilities with other tenants. It is estimated there were almost half a million HMOs in the UK at the end of 2018, a figure which is likely to have risen over the subsequent two years.
HMOs are attractive to investors, as we explored in our article Where to Buy Your First HMO, which covered how it is a top investment strategy. For a landlord, there is profit in numbers and the more rooms your house has to let, the more income your property will generate. At the same time, the property is likely to be naturally accruing value, both in terms of equity and ever-rising house prices.
As a landlord and a property owner, insurance is an integral part of your expenses. Usually, building’s insurance is down to you, whilst contents are down to the tenants. HMO insurance is designed differently to normal policies, and it is usually constructed to suit your individual needs. There is no legal requirement for an HMO to have insurance, but your mortgage lender may require you to do so. Also, your HMO tenancy agreement may require you to have certain policies in place to protect your financial future.
HMO insurance covers the usual risks associated not only with a buy-to-let property but also rental activity. They start with a basic cover, including building’s insurance, which covers the cost of major structural repair. Standard cover usually also includes property owner’s liability insurance, too.
After that, you may choose to add on certain elements, and this is where the subtle difference between HMO and other landlord policies comes in. You can add contents for example, which would not usually be the responsibility of a landlord in a private rental situation. The contents covered are the ones owned by you – a HMO tends to be furnished, certainly in communal areas, and it is those contents which are covered. If your tenant loses their laptop, that would be down to them, not your policy.
You can also cover loss of rent. Usually, this is for aspects such as a natural disaster, flooding and the like. There may be special options that cover you against non-payment in certain circumstances. Just one problem tenant in a HMO could cause widespread problems, either of the financial type through not paying rent, or by affecting other, settled tenants. You would only likely be covered for that eventuality if you have specified it with the insurer but beware, your premiums would likely rise as a result.
You can also add emergency cover for breakdowns to the policy, for systems such as the heating and the plumbing. Whilst this may be a bolt-on within a wider HMO policy, you can also look to source that independently from a specialist provider if you wish. The landlord insurance options on HomeServe outline how some policies offer 24-hour cover and almost immediate expert engineer attendance to solve the issues your tenants face. Whether this is part of your HMO policy or arranged separately, it is up to you, but it can take away some of the stress of owning a HMO and having to react to problems. Remember, more rooms mean more income, but it also means more scope for phone calls and problems.
A good HMO policy will also cover you for injury to tenants. If a tenant falls down the stairs or injures themselves on the fabric of the house, they may choose to sue you as the landlord. Good cover would ensure any compensation claims did not come directly from your pocket, not only to a tenant but also anyone injured in the house. Finally, HMO landlord protection can cover some of the cost of eviction, should you find yourself in that situation. The Landlord Law Blog states that eviction can be a costly, and a troublesome process, with multiple costs incurred, should you need to explore that option. A good policy may even come with legal expenses included, but make sure to check your documents.
HMO landlord cover is complex and can cover a wide range of different aspects, so make sure before you take out yours that you assess your needs and get a cover that most applies to you and your investment.
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