HMOs, (Houses in Multiple Occupation) have been growing in popularity with landlords for some time now in a bid to enjoy higher yields that may be unavailable in the standard Buy-to-Let market.
HMOs include properties such as bedsits, shared houses, lodgings, hostels, and student accommodation. All these properties require a special HMO Licence granted by the local council which is valid for 5 years. Each HMO property requires a separate licence and the fees and paperwork associated with this vary from council to council.
It is the licensing of these HMO properties that form the latest change to hit Landlords. This comes on top of other regulation, tax changes, and new rules that seem to be raining in all over the place at present. It is an interesting time to be a Landlord, to say the least.
HMOs were defined as properties where:
This latest change removes the third requirement. Therefore all landlords renting properties to five or more tenants who are not related need to get an HMO licence. This simple change means an estimated 160,000 extra properties now need an HMO licence.
These rules also go further in introducing a minimum size requirement for bedrooms. In a bid to eliminate overcrowding or poor conditions, rooms sleeping one adult must now be at least 6.51 square metres. For two adults’ rooms must be no smaller than 10.22 square metres.
Interestingly, there was also no grace period given when these changes went live on 1st October as expected. This means that anyone not complying now could potentially be in line for a fine of up to £30,000.
It is important to note that you should check with your individual council as some may have a stricter definition than this.
There is also another issue that we have seen. There are some lenders who have leant against properties previously not considered to be an HMO, but which this latest change now makes into one. This means that the property no longer meets their usual lending criteria. We could, therefore, see lenders start to insist the properties are remortgaged away as soon as possible.
This could lead to unnecessary costs or having to repay part of the loan to switch to other lenders. At a time when the affordability rules around investment properties have changed dramatically, this can prove tricky.
Landlords need to be aware of this if they apply directly to a lender for a further advance and the property has technically changed due to the HMO licence. Some councils are writing to lenders when an application for an HMO licence is made, alerting the lender to the change of use. This can cause issues if the mortgage lender does not ordinarily lend on HMO properties.
It is just another example of why landlords need to take some time to review their portfolios carefully.
The good news is that it needn’t be a disaster, with more lenders coming to the market with a specific emphasis on lending to HMOs and Professional Landlords. There is now a wide range of choice available at rates which are still lower than we have ever seen in this particular area.
However, many mortgage brokers have begun to shy away from this type of business due to the increasing complexity and time taken on each deal.
Coreco, however, are well prepared for this and have an experienced team concentrating solely on this type of transaction. Our team has honed their skills over many years and fully understand the, often complex, needs of today’s landlord and how they can make the best of their portfolio and the current lenders’ offerings.
We highly recommend that landlords take professional advice and review their portfolios now to ensure they are still making the best use of the products and opportunities around. No one wants any sudden surprises.
As for Buy-to-Let mortgage rates available, landlords can still obtain products from just 1.29%, (5.39% APRC) for a 2-year tracker or 5-year fixes are available from 2.15% (4.96% APRC).
To contact our specialist Buy-To-Let team please send a message via our contact form or call 020 7220 5110.