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What does the future look like for HMOs?

On top of the punishing stamp duty and section 24 changes of 2017, HMO landlords are now being clobbered with a national extension of HMO licensing, navigating a proposal to introduce three-year tenancy agreement. Is the future bright? Is the future still HMO?

Proposed three year tenancies

 Cities up and down the country have bid their student cohorts farewell for the summer and left (some) landlords picking up the rubbish or the one-year-only appliances slapped with the post-it note “works fine but we don’t want it!” – another toaster is added to the tip collection.

And it’s a busy time for student landlords to say the least. I recently drove down the street in Sheffield where we own several HMO’s and it looked apocalyptic! The strewn rubbish of hastily vacated digs of now ex-occupiers heading off to Ibiza, festivals and a break from university.But new government proposals aim to force landlords to offer tenants a minimum three years contract – with tenants able to leave earlier (break clause) should they wish.

The proposal comes at a time when home ownership is at its lowest in 30 years, some 14.3m households (of a total 22.8m) are owner occupied in England (62.9%), according to the English Housing Survey, produced by the Department for Communities and Local Government (DCLG). According to the same report, the private rented sector now accounts for 4.5m households, double the 2.3m in 2004, or 20% of total households as opposed to 10% of total households back in 2004.

While home ownership levels have remained relatively unchanged in the last three years, the private rented sector is a different story, particularly when paired with the latest demographics seeking entry to the current property market.

In 2005-06, 24% of 25-34 year olds were privately renting, that figure is now 46% in 2017. In the same period, 25-34 year olds buying a home with a mortgage dropped from 53% to 35%.

The proposal, which seeks to lengthen the common six-month to 1 year tenancy agreements (currently thought to be around 80% of all contract lengths), looks to give tenants more control, security and longevity in their houses.

Extensions to mandatory HMO licencing scheme – October 2018

 While the UK housing market depends on the private sector investing in houses, it is also bumping up price inflation with knock on economic effects. As a measure, the government has sought to curtail the tax relief that BTL investors have enjoyed, forcing many out of the market and reducing the sector to a sustainable size. But there’s more to come. Long in the cross-hairs of government, the HMO sector has seen particularly heavy regulation with an extension to mandatory licensing requirements, tightening up on the number of storeys loophole as well as new minimum room sizes (see below).

That could be as many as 177,000 HMOs becoming subject to mandatory licensing in England, according Residential Landlords Association research.

From October 2018, the main change to HMO legislation will be the removal of the three storey rule. In the majority of cases, a property occupied by 5 or more individuals forming two or more households will become licensable, irrespective of the number of floors in the property. Landlords will also have to adhere to a new minimum room size standard. Especially for landlords with attic rooms, it’s important to note the ‘size’ will only be considered where there is 1.5m in celling height.

  • Minimum double room size: 10.22sqm
  • Minimum single room size: 6.51sqm

There will also be a mandatory requirement for landlords to adhere to council refuse schemes to ensure that HMO properties have adequate waste management facilities.

Will the three year tenancy proposal affect HMO landlords?

There shouldn’t be a direct effect. The proposal is considering making student accommodation exempt as the sector clearly follows academic turnover and, indeed, the higher education sector relies more heavily on private accommodation than many others – this is already the case in Scotland. There is less clarity around the young professional house share market though.

Of more concern is what it does to other BTL landlords. Those who have not already sold off part of their portfolios to afford mortgage repayments following the newly introduced tax pressures, could now face even greater reluctance from lenders.

David Smith of the Residential Landlords Association responded cautiously to the new proposal: “We would warn against making it a statutory requirement to introduce three year tenancies. Many tenants simply do not want to be tied to a property long term.

“It is vital that the market is able to provide the flexibility that many need in order to swiftly access new work and educational opportunities.” says Smith.

While the proposal allows landlords to increase rent once a year to reflect interest rate changes, it does not however provide a repossession clause. This may make many lenders reluctant to shoulder the added risk (should the landlord default and the property not repossessed for three years) and may lead to even higher interest rates on Buy-To-Let mortgages.

This could mean more BTL landlords dropping out of the market altogether or, more landlords turning to the exempt sectors, such as student accommodation, actually making the HMO market more competitive.

Source: Property118

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New powers to tackle rogue landlords unveiled

Private sector landlords operating in Cheshire East are being warned of tough new penalties to crack down on poor housing standards.

Cheshire East Council has amended its housing enforcement policy to include new powers, which could see the most serious offenders banned from letting properties altogether or entered on to a national database of rogue landlords.

In addition, landlords will have to ensure their properties comply with a minimum energy efficiency standard or face a fine of up to £5,000.

These new powers add to the enforcement options already available to the council, which include civil penalties of up to £30,000 and rent repayment orders for certain housing offences – both of which were added to the policy in August 2017.

Since last year, the council has issued fines totalling almost £25,000 against five landlords, all of whom had failed to apply for a licence for a house in multiple occupation (HMO).

Councillor Ainsley Arnold, Cheshire East Council cabinet member for housing, planning and regeneration, said: “There are many responsible private landlords in Cheshire East, who offer well-managed accommodation that is of a good standard, helping to ensure the welfare of tenants.

“Disappointingly, though, there are a small number who either do not understand their legal responsibilities when providing housing or deliberately ignore their duties.

“This council is committed to challenging poor-quality housing and will proactively work with landlords to improve standards, where they fall short.

“But, where landlords fail to take the necessary action, we will make full use of the enforcement options available to us.”

The updated housing enforcement policy now includes a guide for landlords of HMOs, outlining the amenities, property and management standards expected of them and details a stronger ‘fit and proper person’ test.

It also includes the revised definition of HMOs that require a licence. From 1st October, all HMOs where there are five or more occupants – living in two or more separate households – must be licensed.

Cllr Arnold said: “Operating without a licence is a criminal offence and landlords could face an unlimited fine. That is why we are urging landlords of HMOs, who have not already done so, to apply for one as soon as possible.”

Source: Alderley Edge

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HMO Licence Rule Changes On The Way

HMO licence rule changes are on the way as the criteria for properties that need an HMO licence becomes broader.

At the present time you are only required by law to obtain a Houses in Multiple Occupation (HMO) licence if the rental property is:

1) Rented to five or more people from more than one household

2) At least three storeys high

3) Having tenants using the same facilities

Though individual councils are able to set further rules.

However, from the first of October this year, any property occupied by five or more people from two or more households will be considered an HMO, regardless of its height or the available facilities.

Anyone managing a property that is considered to be a House of Multiple Occupation needs to apply for an HMO licence.

HMO managers need to be considered a fit and proper person to hold an HMO licence.

The property will also be required to meet further safety obligations with regard to fire, gas and general safety, and the property must be considered suitable for the number of tenants living in it.

Minimum room sizes will also come into play in October. Bedrooms occupied by a single adult will need to measure a minimum of 6.51 square metres, while those occupied by two adults will need to measure 10.22 square metres or more.

Rooms slept in by children of 10 years and younger will have to be no smaller than 4.64 square metres.

In Scotland and Wales, regulations are slightly different. An HMO is any property rented by at least three unrelated people who share bathroom, toilet or kitchen facilities. Your responsibilities and obligations in Wales and Scotland for running an HMO may also vary.

In addition to the new HMO regulations introduced nationwide, many councils are introducing further landlord licensing schemes, so it is important for all landlords to check local regulations.

Source: Residential Landlord

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Why landlords need your help

Our recent research amongst landlords showed that only 21% said they were a full-time landlord. The rest had another job. So it is fully understandable why it is difficult for landlords to keep abreast of the constant flow of regulatory changes. Even those full-time landlords that I know struggle, so just imagine what it is like for the rest.

This is why having a financial adviser is so important for landlords, which is great news. Over the years we have read about perceived threats to the adviser community, from when the internet first begun through to robo advice and a new era of AI. But nothing can be further from the truth and landlords are now wanting a relationship that goes beyond pure advice on their mortgage.

This was reinforced in our research. Of those landlords using a financial adviser, 23% wanted help in understanding how new regulation affects them. There are changes to the licencing rules for houses in multiple occupation (HMOs) in October, for example. This has been discussed a few times within the media, but I suspect many of your landlord clients will be in the dark about this. For some, they may need to raise capital if they need to make any refurbishments and changes to comply with the new HMO licencing rules.

A further 35% of landlords, who use a financial adviser, said they need help understanding the implications of taxation, given the raft of rule changes that have been implemented. It is a complex area and I know some advisers are building reciprocal arrangements with tax advisers to determine if owning a buy-to-let property via a limited company is the right thing to do for the client. Nonetheless, the market is seeing a rise in limited company buy-to-lets. At Foundation Home Loans, over 40% of our buy-to-let applications are under this structure.

The buy-to-let market continues to change and because of this change, your landlord clients need your help more than ever – and there are lots of landlords out there who don’t have a financial adviser and are probably on the lookout for one. So take advantage before someone else does.

Source: Mortgage Introducer

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Goodbye HMOs, hello Flats?

There has been a trend for some time now for converting HMOs back in to single-let properties. Why?

Well, many landlords report that the HMO market in some cities and towns is completely saturated – and they are absolutely right.

For a long time now I have advised people to be very careful when acquiring or developing a HMO. It must be in the right area, there must be a constant demand, and the rental price of a room must be significantly higher than the rental price of a one bed flat.

If not, be warned that you may find yourself with a very difficult under-performing property investment. Add to this the increased regulation in the HMO market and hopefully you can see why investing in HMO’s could have had its day… Certainly outside of its traditional demand areas.

The HMO market has developed rapidly in the past decade and has served a market demand, but rest assured it is now under attack.

For evidence let’s just look at the student market. The institutional investor has entered the student market on a large scale, creating high spec purpose built blocks of rooms, supported by universities and preferred by parents – especially the parents of oversees students.

Consequently, the private landlord letting to students has found their market disrupted massively. In Hull and York this has led to an oversupply of nearly 300 student properties in each area, in turn to many landlords turning their properties back to standard residential lets.

Others have had no choice but to compete in the much more competitive ‘professional’ HMO market, targeting regular workers. This is creating on over-supply in this market too, driving down room rates. And when the room rates hit the same level as a one-bed flat rate… then suddenly tenants start to reconsider their position and letting preferences.

My view on this is relatively simple. HMO’s have their place in big cities, student areas and areas where there is an abundant supply of low income workers (look out for large distribution sheds and companies such as Amazon). When investing you need to choose your location wisely – and check for signs of saturation in the market. Look for Article 4s, get information from the council on multi-lets, and scour spare room and rent a room portals for the number of ads from an area, take-up and turnover of rooms.

For the savvy investor, though, this does represent an opportunity.

If you can identify areas with saturated HMO markets, then you can be certain that the demand for one-bed flats or studios will be there – and will be growing.

It’s worth looking at those areas and consider converting any existing HMOs into studio flats, or acquiring properties to develop into flats to serve the new market.

Source: Simple Landlords Insurance

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Refinancing buy to let mortgages likely as HMO changes near

A buy to let mortgage firm says it’s likely that there will be a spike in refinancing enquiries as landlords meet a new deadline for HMOs.

A raft of changes come into effect in October, including:

– Introduction of minimum room sizes: rooms used for sleeping by one adult must be a minimum of 6.51 square metres; bedrooms shared by two adults must be at least 10.22 square metres;

– Bedrooms occupied by children of 10 years or younger must be at least 4.64 square metres;

– Local authorities have the discretion to increase minimum room sizes if they wish.

In addition:

– HMOs occupied by five or more people, must have an appropriate mandatory licence, regardless of how many storeys the property covers;

– Purpose-built flats with up to two flats in the block, require mandatory HMO licensing;

– Landlords must obtain a mandatory license if the property is occupied by persons living in two or more separate households.

Penalties for running an unlicensed HMO or for failing to meet the required licensing standards, set by the relevant local authority, could see landlords face unlimited fines.

But the implications of failing to meet local authority licensing standards on an HMO property could impact future funding claims Andrew Turner, chief executive at Commercial Trust Limited.

“More landlords will be required to bring their HMO properties up to local authority licensing standards. In scenarios where perhaps one bedroom in the property fails to meet minimum licensing standards, there could be future implications, if the landlord wants to remortgage the property.

“Investors looking to remortgage may find that a lender will only base rental stress calculations on rental income from the bedrooms that do meet local licensing rules. That could make obtaining the required level of financing a lot tougher.”

Source: Letting Agent Today

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“Over concentration of HMOs within the immediate locality” sees plans for former office space refused

Plans to convert “dilapidated” and “eyesore” office space in Wrexham into a HMO have been refused.

The application for Unit C on Maesgwyn Road had been submitted to Wrexham Council in April 2018.

Previously the offices were home to the Wrexham tram depot before being used as a bus depot. In recent years it has been used as a garage and repair shop. However they have since been vacant for a number of years and have been subject to vandalism

Under the plans put forward to Wrexham Council it had been proposed the office space was converted into a six bedroomed House of Multiple Occupancy (HMO).

In the initial application documents, the applicants stated: “We feel this planning application should be looked favourably upon as the intention to provide additional accommodation within the town centre ideally suited to young professional’s seeking work or employment in the area.

“The building is prominent to existing dwellings and is currently in a dilapidated state where vandals have targeted windows and walls within the building.

“At present the building is an eyesore to local residents, by allowing this conversion to take place the building will be revamped and be a secure building ensuring vandalism won’t occur.

“By allowing us to convert the existing offices to provide a HMO we are retaining the existing characteristics of the building, reducing its impact on the current parking arrangements and ensuring parking issues aren’t magnified should the unit be refurbished as an office.”

However a delegated decision made by the council’s head of environment and planning has seen the application refused due to an “increase in the over concentration of HMOs” in the area.

A decision notice published by the head of environment and planning states: “The proposed development would increase the over concentration of HMOs within the immediate locality to the detriment of the social fabric of the area and the amenity of the existing residents.

“Adequate onsite private open space is not provided which would be to the detriment of the future occupiers of the development and to allow the development would be contrary to Policy H4 c) and d) of the adopted Wrexham Unitary Development Plan and Local Planning Guidance Note No. 5 “Houses in Multiple Occupation”.

Source: Wrexham

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Government to review selective licensing as it unveils new guidance for HMO properties

The Government has announced a review into selective licensing to assess how well it is working.

The review will seek evidence from local authorities and bodies representing landlords, tenants and housing professionals, with findings reported next year.

A Government statement said: “In areas where selective licensing applies, landlords must apply for a licence if they want to rent out a property. This means the council can check whether they are a ‘fit or proper person’ to be a landlord, as well as making other stipulations concerning management of the property and appropriate safety measures.

“The review will see independent commissioners gather evidence from local authorities and bodies representing landlords, tenants and housing professionals.

“The review’s findings will be reported in spring 2019. There will be an update on progress in autumn this year.”

It comes as the Government set out guidance for the extension of mandatory licensing of Houses in Multiple Occupation and the introduction of minimum room size requirements.

Local authorities have been told to start making landlords aware of the regulations – being introduced on October 1 – and existing licence holders will need to be given extra time to make their properties compliant when they come to renew their licence after deadline.

Currently, HMO landlords require a licence if letting properties that are three or more storeys and occupied by five or more people from at least two separate households.

From October 1, the licensing rules will be extended to HMO properties of all sizes, including two-storey houses and bungalows.

Government guidance published yesterday said: “Local housing authorities have a duty to effectively implement mandatory licensing in their district.

“This means that they must promote licensing in their area and accept and process applications before October 1st 2018.

“We expect local housing authorities to have the framework in place to process and issue licences in advance of this date and to encourage early applications from landlords who are due to become subject to mandatory licensing. Local housing authorities must also ensure that all applications for licences are determined within a reasonable time.”

The guidance also details rules on minimum bedroom size requirements for HMOs, with a fine of up to £30,000 for those who fail to comply.

The minimum sleeping room sizes are:

· 6.51 m2 for one person over ten years of age

· 10.22m2 for two persons over ten years of age

· 4.64 m2 for one child under the age of ten years.

Any area of the room in which the ceiling height is less than 1.5m cannot be counted towards the minimum room size, the Government said.

Local housing authorities are also required to impose conditions specifying the maximum number of people aged over and under ten who may occupy specified rooms provided in HMOs for sleeping accommodation.

Existing licence holders will have to comply with the new minimum room size requirements from when an existing licence is renewed after October 2018.

If a landlord is not compliant at the time of renewal a local authority must give them up to 18 months to make changes.

Commenting on the announcements, David Cox, chief executive of ARLA Propertymark, said: “Licencing doesn’t work, and it never has done. The Government’s aims are laudable; we’re all striving for the same end goal of improving the private rental sector for consumers, but these policies are impractical.

“Licensing means councils spend all their time administering schemes, rather than enforcing against rogue, criminal landlords – a fact which has been proven time and time again over the last decade. Implementing standards for minimum bedroom sizes means small, cheap bedrooms will be taken off the market at a time when there’s an acute housing shortage.

“This will increase costs for other tenants living in the property, and means those who need or want these small, cheap bedrooms will be left without anywhere to live.

“The announcement, coupled with the gradual removal of mortgage interest relief, new energy standards for landlords, and the ever-increasing fees for these schemes, means landlords are being hit from every side.

“At a time when the Government is concerned with rising rent costs, all its policies are just increasing costs for landlords, fostering a private rented sector where financial burdens due to ever-changing legislations will keep rising.”

Source: Property Industry Eye

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Firms on HMO register named after Freedom of Information challenge

FIRMS and organisations responsible for hundreds of multiple-occupancy homes across Northern Ireland have been named for the first time after a year-long Freedom of Information challenge.

For more than a decade the Housing Executive (NIHE) has maintained a list of the properties in the north registered as Houses of Multiple Occupancy (HMO).

The published HMO register lists information including the addresses of the properties, but does not show who is in charge of them.

However, NIHE has now disclosed the more than 200 public organisations in charge of HMOs – naming them in respect of each property.

It reveals firms and organisations control almost a quarter of all HMOs in Northern Ireland.

HMOs are generally properties let to three or more people from two or more different families.

Of the 5,790 HMOs registered in the north, companies and organisations are responsible for 1,341 which represents almost 11,000 permitted occupants.

Choice Housing has the most HMOs with 202 properties holding 1,402 people, followed by JHT UUJ Ltd with 118 properties covering 590 occupants, and Queen’s University Belfast with 111 properties and 2,100 occupants.

The details were disclosed to The Irish News following a complaint in June last year to the Information Commissioner’s Office (ICO).

NIHE had refused to disclose details in relation to all properties on the HMO register.

However, following discussions with the ICO, the housing body agreed to release information on HMOs run by firms and organisations and withhold details of HMOs run by individuals.

Nicola McCrudden, director of the Chartered Institute of Housing (CIH), welcomed the publication of the list.

“HMOs are generally a more affordable housing option for a variety of groups including students and migrant workers. They also tend to house some of the most vulnerable in society with multiple needs beyond housing,” she said.

“Due to the shared nature of this housing, HMOs are considered to be higher risk and regulation is necessary to ensure residents’ homes are safe.”

Ms McCrudden said they “welcome this transparency” for firms, but said extending it to individual landlords remains divisive.

She said social housing landlords are regulated and their names are publicly available, and “given that the private rented sector is now larger there is a clear argument that transparency should be extended”.

But she added: “Making individual landlords’ contact details publicly available is a contentious issue.

“We recognise the safety concerns expressed by some landlords, particularly those with larger portfolios.

“However, this must be balanced against the needs of tenants who may not have their landlords’ contact details.

“The HMO Act 2016 is yet to be implemented due to no Executive in place, but is intended as an update on the management and regulation of HMOs including mandatory licensing – whether or not ownership details will appear public register remains unclear.”

———–

:: The 15 firms and organisations in charge of the most HMOs in Northern Ireland

Company – Number of properties – Number of permitted occupants

1. Choice Housing Ireland Ltd – 202 – 1,402

2. JHT UUJ Ltd – 118 – 590

3. Queen’s University Belfast – 111 – 2,100

4. University Partnership Programme – 65 – 412

5. University of Ulster – 60 – 402

6. SOBE Developments Ltd – 52 – 231

7. Triangle Housing Association Ltd – 43 – 214

8. Lanyon Jersey Propco Ltd – 42 – 322

9. Silverline Developments Ltd – 40 – 164

10. Croob Properties Ltd – 30 – 282

11. Apex Housing Association Ltd – 29 – 517

12. Radius Housing Ltd – 26 – 376

13. Nexus Property Services, Rentals and Management – 18 – 93

14. Craigowen Housing Association Ltd – 17 – 177

15. Oakdene Properties Limited – 17 – 90

Source: Irish News

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County Durham landlords encouraged to check licences

Landlords with properties in County Durham are being encouraged to check whether they need a licence ahead of upcoming changes to legislation.

Rules around Houses in Multiple Occupation (HMOs) are set to extend to more properties from 1 October 2018 – and the changes may be particularly relevant for landlords of student houses.

From that date, a HMO licence will be required if a property is occupied by five people or more in two separate households, regardless of the number of storeys in the building. Previously, this only applied if the property was three storeys or more.

A single household means either an individual (including a student) or a family unit.

The rules apply to any HMO which is a building or a converted flat where householders share basic amenities like a toilet or cooking facilities, and purpose built flats where there are up to two flats in the block and one or both are occupied as a HMO.

Landlords whose property now requires a licence must apply before Monday 1 October and are being warned there is no grace period after this date.

However, those landlords who already have a current license under a local authority mandatory or additional licensing scheme, as well as landlords who have a selective licence, will not need to apply for a new license until their current license expires even if that is after 1 October 2018.

Joanne Waller, head of environment, health and consumer protection, said:

“This new legislation will bring many more properties under the HMO licensing regime and we would remind all landlords in the county to check whether they now need to be registered. 

“We take our duty to regulate HMOs very seriously as we know licensing leads to improved property conditions for residents living in this type of accommodation”

Source: Sun FM