An additional 177,000 buy-to-let properties could require a mandatory HMO license, based on data provided by the Residential Landlord’s Association (RLA.
Penalties for operating 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, Andrew Turner, chief executive at Commercial Trust Limited, warned.
He said: “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.
“At present, we are not clear from the lenders on what their future approach might be, however, there are ways we can help landlords should they face this issue.”
An at-a-glance summary of the key points relating to the main changes that will apply from October:
• 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.
• 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; and meets—
o the standard test under section 254(2) of the Act;
o the self-contained flat test under section 254(3) of the Act but is not a purpose-built flat situated in a block comprising three or more self-contained flats; or
o the converted building test under section 254(4) of the Act.
• HMOs that currently require a selective licence, will be subject to mandatory licensing.
A licence is valid for five years and a separate licence must apply to each HMO property.
Turner added: “As with my previous example, if a currently unlicensed HMO becomes subject to licensing under the new rules, renovations (for example, increasing a bedroom size to meet minimum room sizes) may be required to meet the new requirements, before a lender will consider the entire property’s rental income for borrowing.
“My message to HMO landlords is, act now.Timings are already tight if works and refinancing are required ahead of October 1st.
“Make absolutely sure your property meets the new regulations. You face fines for failing to do so.
“If you run short on time, a bridging loan or second charge may get you over a renovations hump to help you meet the deadline; but clearly it is far better to be proactive now to try and avoid this.
“As with all change in business, being the last to know and act can be exceptionally painful.
“A remortgage now may avoid you being caught up in the changes this time around, although, be clear that whilst financing may not be affected, this doesn’t mitigate your licensing obligations from October.
“Regardless of your position, we specialise in HMO finance. Talk to our experts and let us smooth your path to a suitable solution.”
Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.