Homes in multiple occupation

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Buy to let investors are becoming used to attacks on their portfolios from a number of different government led actions.  First, it was the treating of mortgage interest when calculating tax relief (those changes are beginning to bite as changes are phased in through to 2020).  Those changes have made investing in buy to let properties less profitable.  Next regulators took action to re-define ‘portfolio landlords’ and how lenders underwrite mortgage applications from such landlords.  These changes are making remortgaging and/or buying a house to rent out more difficult.  As a result, there are many borrowers who are now finding it difficult to remortgage to a new lender at the end of a fixed or discounted loan, again making the investment less viable.  The next squeeze (finalised by government at the end of February this year) comes via a re-definition of a home in multiple occupation [HMO].  This change will lead to a number of landlords finding that they now have to comply with HMO licensing and regulations, which again will increase the costs of owning certain buy to let properties.

The Residential Landlords Association predicts that the number affected by the new rules will exceed 170,000 homes

The main change appears to be minor, but in reality it will draw many thousands more buy to let landlords into a regime that could subject them to unlimited fines if the rules are not followed.  The Residential Landlords Association predicts that the number affected by the new rules will exceed 170,000 homes, and therefore a substantial number of landlords.

At present, a HMO is defined as one that is rented out to at least 5 people who are not from 1 ‘household’, i.e., a family, but who share facilities such as a toilet, bathroom or kitchen.  That remains, but the key issue is that the HMO rules only applied to properties that were at least 3 stories high.  The rules will now apply to ‘shared’ homes irrespective of the number of floors.

Landlords will have to apply for a licence (which is valid for 5 years), renew their licence before it runs out and hold a separate licence for each HMO.  At a high level, landlords new to the licensing regime will need to ensure that the property is suitable for the number of occupants in terms of size and facilities and they will need to ensure the the ‘manager of the property’, either the landlord or letting agent is considered ‘fit and proper’ to manage the property.  This means that they must have no criminal record or have breached any landlord laws or codes of practice.  All owners of HMOs have to submit an updated gas safety certificate annually to the local council, install and maintain smoke alarms and provide safety certificates for all electrical appliances when requested.  Local councils are able to add additional conditions to individual licences – although there is an appeals process via Her Majesty’s Courts and Tribunal Service First-Tier Tribunal (Property Chamber).

Landlords, and those advising buy to let investors, need to consider the full requirements of the document, “Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2006 (2006/371)”.  The new rules come into effect from 1 October this year so there is around 6 months to prepare for the change.  Many advisers who work with buy to let investors are beginning to contact clients to ensure that they consider the new rules and make the right timely applications if they do.  With only 6 months to go it’s time for action.

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Partner - Baxters Business Consultants - a business consultancy undertaking marketing, training, freelance journalism and expert witness services to the residential mortgage lending, building society and financial service industry (April 1993 to date) - www.baxtersbc.co.uk.

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