Buy-to-Let: Early effects of the HMO regulation

April saw the introduction of Houses in Multiple Occupation (HMO) legislation designed to raise standards in the rented property sector. It’s still early days, but six months on Business Moneyfacts takes a look at any early effects these complex new rules have had.

Business Moneyfacts’ Editor, Lee Tillcock, comments: “Fears of a major impact on the sector were always over-played as HMOs constitute a relatively small proportion of the lettings market. However figures released by the Association of Residential Letting Agents (ARLA) revealed the number of landlords who have invested in HMOs has fallen from nine percent to six percent over the last three months.

“While the National Association of Estate Agents’ members has found that landlords are reducing the number of tenants in their properties in order to avoid the need for HMO licences, the survey also reported members having serious concerns over the cost of the licence, ranging from £150 to £1,750, and averaging £515.

“Licence fees are supposed to do no more than recoup their licensing costs, so why are some local authorities are charging 10 times more than others? The procedure and enforcement of HMO licences differs from council to council, each ensuring compliance through their own guidelines, timelines, and criteria, but surely this doesn’t explain the vast difference in licence costs. Perhaps some councils are using this new legislation as a way of boosting their coffers.

“It has left landlords in a state of confusion. Inevitably the stock for students and other multi-tenanted properties will diminish. There is also a potential Catch 22 situation for landlords looking to purchase potential new HMO properties, as some lenders want to see a copy of the HMO licence before they lend on a property. What comes first, the licence or the mortgage?
“There has been some positive news in the shape of research by the Mortgage Savings Centre. It has discovered that HMOs can dramatically increase the yield over a portfolio made up of smaller one to two occupier households, potentially by approximately 4-5 per cent per property. However this research is based on million pound portfolios containing three to four HMOs, not the normal run of the mill investment.
“Property is by its very nature illiquid no matter how it is held and is both expensive and complicated to buy and sell. Regulatory implementation in the form of licences must be enforced fairly to simplify the process, or we could find rogue-like councils taking the place of unscrupulous landlords.”

 

NOTES TO EDITORS:

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