The HMO landlord client checklist: What’s changing?

Regulation never stands still, so you can support landlord clients by helping them stay up to date, says Matt McCullough, head of sales and development at Aldermore.

It’s no secret that the buy to let sector has been somewhat challenging in the last 10 years, but it remains a solid and profitable investment for many landlords. If your clients are looking for greater yields to offset higher mortgage rates, tax changes and the cost of regulation, HMOs can be a good option, with higher potential returns.

However, this specialist area of buy to let comes with added risk and more effort on the landlord's part to meet the extra rules and responsibilities.

Whether they’re experienced or just stepping into the HMO space, you can help support your clients with this practical checklist of what they should be doing now and what changes are on the horizon.

HMO licensing

HMO licensing rules are complicated, because they vary across the country. This means that landlords need to understand the rules that apply in the area where they hold rental properties, as well as meet the national requirements.

A HMO is defined as a property rented to at least three people from more than one household who share facilities, such as a kitchen or bathroom. However, Mandatory Licensing of HMOs only applies to larger properties with five or more tenants from more than one household.

To further confuse matters, many smaller HMOs that don’t meet the criteria for Mandatory Licensing still require a licence under Additional Licensing schemes run by some local authorities or even a Selective Licensing scheme, which can apply to all the HMOs in a specific area.

Licensing is complex, so your client needs to contact the relevant local authority for the lowdown on what they need to do. If they do need a licence, they will also need to have a Housing Health and Safety Rating System risk assessment done by the local council within five years of it being issued. If any issues or hazards are identified, they’re responsible for putting them right.

Managing the property

HMO landlords have to comply with standard landlord responsibilities, including:

• Protecting tenants’ deposits in a government-approved scheme within 30 days
• Having an annual gas safety check by a registered engineer and giving the tenants the certificate
• Ensuring electrical systems and appliances are safe
• Maintaining shared areas and repairing fixtures and fittings
• Installing smoke alarms on each floor and carbon monoxide alarms where needed
• Keeping escape routes clear and providing fire-safe furniture
• If the property is also licensed, there are extra requirements, including:
  • Making sure there are enough bins, cooking and washing facilities to meet the needs of tenants according to national standards
  • Checking that all bedrooms meet minimum size requirements, plus councils can increase these minimum sizes at a local level.
  • Fitting fire alarms, extinguishers and fire doors in HMOs over three storeys
  • Ensuring a registered electrician completes a property check every five years

Remember, councils can impose extra requirements over and above standard rental responsibilities and on top of Mandatory Licensing rules. This could be through Additional Licensing schemes, for example, so your client always needs to check with the local authority.

What’s on the horizon?

Despite an already-long checklist for HMO landlords, regulation is never a one-and-done deal in the private rented sector. It’s constantly evolving, and there are some big changes on the horizon for landlords.
Help your clients to future-proof their portfolios by making sure they know exactly what’s coming:

The Renters’ Rights Bill: The biggest piece of legislation to hit the private rented sector in a generation is likely to become law this year, bringing significant change.

Key proposals include the end of no-fault evictions (Section 21), which are frequently used by HMO properties to manage tenant disputes.
All new tenancies will become periodic from day one and landlords will need to give at least two months’ notice. This has implications for student HMOs, where landlords rely on fixed terms that match the academic year, although there will be a limited discretionary ground for eviction for student-specific lets.

Restrictions on rent increases, Awaab’s Law and the Decent Homes Standard being applied to the private rented sector, as well as the creation of an Ombudsman, are all features of this landmark Bill.

EPC reform: Whole property HMOs fall under the current requirement to have a minimum EPC E-rating. This could change as the government wants to tighten Minimum Energy Efficiency Standards to at least an EPC C-rating.

There are obvious cost implications for landlords, but grant funding may be available to help fund energy-efficient improvements. And there are benefits to boosting the EPC rating of a rental property, from attracting quality, long-term tenants to a potential property price premium.

Supporting your clients

Running a HMO is a hands-on investment, with a raft of rules to follow and regulatory changes to keep track of. You can help your clients by making them aware of what they need to do to stay compliant.
Start by sharing this checklist with HMO landlords and signposting them to trusted sources of information, such as landlord associations, the government website and their local authority.

Some of these measures can be costly, but you can help HMO landlords minimise their outgoings or fund any necessary improvements with the right mortgage.

Stay up to date with the market, as not all lenders offer mortgages for HMO properties, and criteria can vary widely.

Aldermore backs landlords with HMOs and we recently improved our proposition to boost their borrowing potential. We offer expert case management, flexible conveyancing options, higher loan limits, reduced ICRs (as low as 130%) and tailored underwriting that considers complex cases. And, as always, we take a pragmatic, common-sense approach when we assess applications.

HMOs remain a valuable part of the rental market, with the potential to be highly profitable. With your help, your clients can navigate the next set of rule changes with confidence.