Landlord Tips Regulation

HM-uh-O

Written by Sarah Walker

How is extended mandatory licensing going to impact HMO landlords?

The Government’s been doing a lot recently to ramp up the fight against rogue landlords. Maximum fines have been increased, money’s been ring-fenced for local authorities to plough back into enforcement efforts and a national ‘rogues database’ has been set up. And now – possibly encouraged by the Grenfell Tower tragedy – the spotlight has fallen firmly on HMOs.

And that’s a good thing. Tenants who rent rooms are often the most vulnerable and they’ve been exploited for too long by too many slum landlords who run overcrowded, poorly-maintained and often illegally-let HMOs. The worst of these not only pose a physical and mental health risk to tenants, but also a risk to their lives.

Licensing is a big step towards improving standards and keeping tenants safe. It means the property must be (a) registered with the council, (b) inspected by them within the licence period to make sure it meets fire and amenity standards and is free of the hazards listed in the HHSRS and, (c) the gas (and sometimes electrical) safety certificates are forwarded to the council each year. It’s a way for the council to have a level of control over the standard of HMOs.

As it stands at the moment, an HMO only needs to be licensed if all of the following apply:

  1. there are five or more people living there
  2. they form two or more households
  3. the property has three or more storeys.

But from 1st October, a licence will be required if the first two conditions apply, regardless of the number of storeys. At the same time, a minimum bedroom size is likely to be introduced.

The RLA estimates that this change in the law will affect 177,000 HMOs in England alone. If you’re one of them, what’s that likely to mean in real terms?

1. There will be a cost implication. Although the licence fee itself – which usually covers you for 5 years – is unlikely to make a huge difference to your cash flow, if you have to undertake works to make your HMO compliant, this could eat into your profits in the immediate future. Works might include:

    • upgrading the fire alarm system
    • installing wash hand basins in all bedrooms
    • providing additional toilet facilities.

2. Disruption to your tenants and possibly a void period. If you need to get planning permission and satisfy building regulations, any work required could take time to complete and cause some disruption to your tenants. You might even need to temporarily re-house them.

3. You might lose some lettable rooms. If any rooms you’re currently letting fail to meet new minimum size requirements (likely to be a floor area of no less than 6.51 square metres), you’ll no longer be able to let them, which could have a big impact on the financial viability of your investment. Perhaps consider your options for either changing the type of let or generating income in other ways, e.g. renting it out to another tenant as a storage room.

And a big one:

4. Financing could be harder to secure. HMO mortgages are already a specialist field, with lenders commonly basing their decisions on a commercial valuation, looking at the total rental income generated from letting on a room-by-room basis. So, if you’re suddenly a rented room down, you probably won’t be able to remortgage on your current terms. That’s likely to mean either ending up on a less than favourable rate or having to reduce the level of borrowing. If you don’t have any capital reserves, the worst-case scenario is you might be forced to sell.

Bear in mind that local authorities also have the power to set their own standards for licence conditions, so speak to your council housing department as soon as possible to find out (a) the application process for, and cost of a licence and (b) the criteria that the property will have to satisfy. You can find details via the GOV.UK website.

Penalties for non-compliance
If you breach of the new rules, the local council could impose a civil penalty of up to £30,000 or you could even be prosecuted and receive an unlimited fine. The good news is that local authorities are obliged to give you a reasonable amount of time to get your property compliant, so you’ll have up to 18 months before they’re able to take any action. HMOs that are already licensed won’t be required to comply with new rules until the licence is renewed, so you may have several years’ grace.

About the author

Sarah Walker

Sarah Walker is a freelance writer and editor with extensive knowledge of the property investment industry.

A former estate agent and television presenter, Sarah has spent over a decade writing for industry publications and leading UK property companies, producing a wide range of marketing and PR content, including consumer guides, newsletters, website copy, articles and reports.

She has ghostwritten a number of property investment books, edited several others on property, business and branding, and continues to work with entrepreneurs to produce literature that supports their business enterprises. Sarah has been both a landlord and a tenant herself and has invested in the UK and overseas.

Away from her laptop, she’s a keen photographer and loves exploring the Scottish Highlands. Skiing is her sporting passion and she’s an enthusiastic member of her local amateur dramatic society.

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