Adhering to the new rules on Houses in Multiple Occupation could create opportunities for landlords, says Damian Thompson, Director of Mortgages at Aldermore.
Landlords are used to grappling with change. Over the last few years you’ve coped with a near-constant parade of new regulations, and there’s no sign of a slowdown.
This time the rule change involves Houses in Multiple Occupation and came into force on 1st October 2018. While it doesn’t affect every landlord, it’s estimated by the Residential Landlords Association (RLA) that around 177,000 properties could need a licence.
Are you aware?
Are you aware of the rule changes and the possible fines for falling foul of them? There may also be an impact on your borrowing power, which could be important if you want to expand your portfolio or remortgage.
By getting in touch with your Broker or Financial Adviser now, they can help explain the new rules and highlight how you might be affected.
But what are the new rules?
As of 1st October 2018 all Houses in Multiple Occupation (properties let to five or more residents forming two or more separate households) are subject to mandatory licensing by their local authority.
This was previously only the case for HMOs with three or more storeys, but the rule change means a licence is now required regardless of the number of storeys.
But it isn’t just about the type of property that now needs to be licensed. At the same time, additional requirements are being introduced to make HMOs better for tenants.
The Government has introduced national minimum sizes for bedrooms used in HMOs to prevent overcrowding. For example, the minimum sleeping room sizes is now 6.51 m² for one person over 10 years of age, 10.22 m² for two persons over 10 years of age and 4.64 m² for one child under the age of 10 years.
Landlords also need to adhere to their council refuse schemes to deal with the extra waste typically produced by HMO properties.
It’s up to local housing authorities to make these landlords aware of the extended licensing scheme. But, given the RLA’s 177,000 estimates, in practice, there could still be plenty of landlords unaware of their obligations.
The impact on you
As of 1st October 2018 Landlords of HMO properties that fall under the new definition will be committing a criminal offence if they fail to apply for a licence or a temporary exemption. If convicted for not meeting the standards you could face an unlimited fine but your council can choose to impose a penalty of up to £30,000 as an alternative to prosecution – of course, you would be given a reasonable period of time to put right any issues.
Even if you can meet the new stipulations, at the very least you now have an extra chunk of admin to take care of. And, if your property doesn’t comply with the additional requirements, you’ll need to make upgrades, which could be costly.
There’s an obvious remortgaging opportunity here for those landlords who need to raise funds to renovate through their existing provider or a new lender, and now is the time you should be getting your properties ready before the deadline.
If it’s not possible to meet the new minimum size standards, you could lose the rental income it generates, denting your overall profits.
What about mortgages?
It’s possible we will see a restriction in lending on HMO properties as lenders and valuers get to grips with the new licensing rules and how they impact affordability.
If a landlord loses the rental income from a room, that will inevitably reduce their borrowing power, and could make remortgaging difficult, especially under the tighter lending criteria introduced by the PRA last year.
Simply having an unlicensed HMO property in your portfolio could be problematic, even if you want to refinance a different property, now that lenders need to look at the whole portfolio.
We might see delays with valuations and lending decisions from some lenders, or even fewer HMO mortgages available. Make sure you keep up to date with this over the next few months.
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