Landlords: Do you need an HMO license?

In February, a rise in Buy-to-Let mortgage arrears was widely reported. In the final three months of 2017 there were 1,200 such mortgages in significant arrears (i.e. the arrears totalled 10 per cent or more of the outstanding balance). That’s 20 per cent higher than the same period in 2016.

Landlords are being squeezed from two sides: the various tax changes (as reported previously) and the increasing, and often costly, additional regulations. In fairness, many of these regulations have been put in place to protect tenants, which is no bad thing.

 

In simple terms, a House in Multiple Occupation is one where the house is “occupied by persons who do not form a single household”. This definition is taken from the Housing Act 1985.

At that time, the HMO provision in the Act was largely ignored by local authorities and landlords.  However, the Housing Act 2004 introduced the requireent for some HMOs to obtain licences. Updated guidelines now define an HMO as a property rented out by at least three people who are not from one household (e.g. a family), but who share facilities such as the bathroom and kitchen.

A casual observer could simplify it further—HMOs are basically house shares.

Since 2004, HMO licensing has been a slow-burning issue, which could soon flare up.  Over the past few years there have been a spike in the number of non-compliant landlords who have been prosecuted.

As is often the case in the world of property, there’s no straightforward answer. What constitutes an HMO varies between Scotland, Northern Ireland, and England and Wales.  Moreover, different councils have interpreted the rules in different ways.

But, in simple terms, you must have a licence if you’re renting out a large HMO. Your property is defined as a large HMO if all of the following apply:

Note: An HMO licence is valid for five years. But, you have to renew it before it runs out.  Also, every HMO property needs its own HMO licence. 

 

To obtain an HMO licence, the landlord needs to ensure:

Note: The council may add other conditions to your licence. They will let you know when you apply.

You need to contact your council to request an HMO licence. Alternatively, you can employ your managing agent to do the same. Unless, you’re experienced in this area, I urge you to do the latter. Here’s why: I recently downloaded an HMO application form from Lambeth council; it was 32-pages long.

Needless to say, the council will charge you a fee. This is invariably based on the size of the property.

 

These proposals, which were detailed in recent government papers, will prohibit landlords from letting rooms in HMOs to a single adult where the usable floor space [of the occupant’s bedroom] is less than 6.51sqm (or 10.22sqm for a room occupied by two adults).

Assuming this becomes law, the HMO licence will include a condition that states the maximum number of persons who can occupy each specific room in a rented property.

 

Potentially, yes. AN HMO licence may allow you to rent out more rooms in your property. And, according to research from Mortgages for Business, HMOs saw yields of 8.9 per cent in 2017. These were the best Buy-To-Let property yields reported.

So, maybe this is a win-win, for landlords and tenants alike.

 

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