New HMO licensing rules to affect more landlords

Buy to let rates could be set to rise in 2019
Buy to let rates could be set to rise in 2019

Updated Government rules are set to draw thousands more buy to let landlords into the HMO licensing net from 1st October 2018.

RLA Pearl recently predicted that as many as an additional 177,000 homes could now be subject to HMO licensing.

Failure to comply with the new regulations could see landlords subjected to unlimited fines.

In early March, the Government introduced the Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018 (2018/221) (LHMO 2018), which comes into effect from October 1st, 2018.

Houses in Multiple Occupation (HMOs), are defined by the Government as “a property rented out by at least 3 people who are not from 1 ‘household’ (eg a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’.”

At present, landlords operating an HMO, are subject to the Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2006 (2006/371), which is applied in certain regions of England and Wales.

Local authorities set the cost of obtaining such a licence.

Under the present rules, the Government states:

“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:

  • it’s rented to 5 or more people who form more than 1 household
  • it’s at least 3 storeys high
  • tenants share toilet, bathroom or kitchen facilities

Even if your property is smaller and rented to fewer people, you may still need a licence depending on the area. Check with your council.”

At the moment, HMO licensing is limited to specific local authorities, so whether a landlord’s property is subject to one, depends on its locations. Landlords can check whether their local council will require an HMO licence on a relevant property, by visiting the following page:

https://www.gov.uk/house-in-multiple-occupation-licence

The new rules

However, the law amendment will change the above conditions, extending the scope of the mandatory licensing requirements relating to Houses in Multiple Occupation (HMOs), under section 55(3) of the Housing Act 2004 (HA 2004).

Under the new rules, licensing will apply to HMOs occupied by five or more people, irrespective of the number of storeys.

Additionally, from October, HMO licensing will apply to purpose-built flats where there are up to two flats in the block.

There will be transitional provisions for HMOs that are already licensed under the selective licensing provisions, which will last for six months, but which will be subject to mandatory licensing from 1 October 2018.

According to RLA PEARL, 16% of landlords currently rent to people in HMOs and the projected 177,000 extra properties likely to be affected by the changes, are likely to impact on thousands of landlords.

HMOs will become subject to mandatory licensing in England.

Properties will require a mandatory licence if the following criteria applies:

  • It is occupied by five or more persons;
  • is occupied by persons living in two or more separate households; and
  • meets—
    • the standard test under section 254(2) of the Act;
    • 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
    • the converted building test under section 254(4) of the Act.

A licence is valid for five years and a separate licence must apply to each HMO property.

Licence requirements:

In order to operate a licenced HMO, landlords must comply with a number of standards:

  • the house must be suitable for the number of occupants;
  • whoever manages the property – whether that is the landlord or an agent, must be considered ‘fit and proper’ and must have no criminal record or history of breaching landlord laws of code of practice;
  • the local council must be sent an updated gas safety certificate annually;
  • the landlord must install and maintain smoke alarms;
  • the landlord must provide safety certificates for all electrical appliances within the property when requested.

Jorden Abbs, director of operations at Commercial Trust Limited commented:

“It is imperative that landlords check whether their property is classified as an HMO requiring a licence by October 1st, or they risk falling foul of the updated laws.

“This extension of the HMO laws will place further pressure on landlords and local authorities, but can also be viewed as a further initiative aimed at raising standards within the private rental sector.

“It does seem clear that there is a shift towards creating a greater degree of professionalism amongst landlords and this latest move may well provide further impetus.

“We have not, as yet, received any comment from lenders as to whether this will affect existing borrowers, although realistically we can expect a couple of potential outcomes.

“Lenders who currently offer mortgages to HMO’s that are not currently licensed, but will be under the new rules, can either change their criteria to accommodate these properties and continue to transact; or they will not and at renewal the borrower will have to look elsewhere.

“With the range of lenders we work with and the appeal of HMO lending, there will always be a choice of options available. As a specialist in the field we are constantly monitoring changes in criteria to ensure we recommend the most suitable product for our clients. I urge any HMO landlord in any doubt, to come and talk to us.”