SOME CITIES, SUCH AS PLYMOUTH, ARE LOOKING TO CLAMP DOWN ON THE NUMBER OF HMOS AVAILABLE IN THE AREA—WHAT EFFECT COULD THIS HAVE ON THE OVERALL PRS?

Despite the news that certain cities are looking to clamp down on HMOs, there is and always will be a high demand for them, driven by individuals who want to live independently but cannot afford self-contained dwellings—such as students or young professionals starting out their career. It’s fair that local councils want to balance these housing demands with the need to preserve the character of the local town and community, and the pressures of HMO living can bring issues such as limited parking or refuse collection. However, like everything, it’s a question of balance. It’s about matching their number with the ever-growing demand for housing to ultimately have towns that aren’t oversubscribed with HMOs, while still offering a good supply of such occupancies.

The biggest one is that you need first to obtain planning permission for an HMO—this should only follow in areas that have an article 4 in place. Another misconception is around HMO licencing and planning—the licensing application is a completely separate process to the planning application; they are not one combined process as one would logically think. I see so many landlords who have an HMO that has a licence in place, but who have never applied for change of use from a C3 to C4 when they go for a remortgage and, ultimately, the application fails at the legal stage.

Many think that it is easy to manage tenants themselves, but this isn’t always the best option. The actual cost of managing HMO lets needs to be factored into the overall financing—whether you do this yourself or employ a third party. The wear and tear must also be accounted for; more tenants can increase the chance of damage, so the cost of repairs is usually higher than a standard AST. Landlords also need to educate themselves on demand for HMOs in their local area before embarking on such an investment. In an over-supplied market, a very average HMO is not going to stand out from the competition, so making sure the standard of your property is high needs to be factored into the overall cost.

One misconception is that a property always requires planning permission to be converted into an HMO. Generally, a house or flat can be turned into an HMO occupied by no more than six people without the need for planning permission, as this change of use is covered by permitted development rights (PDRs). Local authorities do, however, have the right to restrict or even remove PDRs for their whole area, or certain areas within it. Licensing is also a common area of confusion when it comes to HMOs, as local authorities have different rules and regulations. For both PDR and licensing reasons, it’s always important for an investor to check the specific details of the location in which they are looking to buy.

For even the most experienced landlord, localised rules, planning and licensing requirements can all present a minefield. While some HMOs require different licences, some don’t require any at all. There are also article 4 directives which block traditional PDRs for HMOs. Meanwhile, each council will look at their licensing and legislation uniquely to their area—this certainly makes things more complicated and requires property investors to do extra research. Thankfully, some councils are proactive in providing online questionnaires for landlords to submit their property details and find out what licence and legislation it falls into. This makes it much more straightforward for landlords to work out what is required and for brokers to support their clients, especially those first-time investors. Brokers play an important role in helping clients with their understanding of local requirements.

We’ve had many conversations with landlords looking for funding support to take advantage of the higher rental yields that HMO investments can offer. However, many deals fall through after the landlord has worked out the full costs and administration involved in running an HMO portfolio. The licensing requirements and the building regulation standards for HMOs now demand significant investment. In article 4 areas, formal planning approval is required, which adds another layer of cost and time, not to mention there is a high risk of planning being declined. While HMOs do offer higher yields, the costs and layers of compliance mean a landlord must work hard and make a real investment to achieve them. That said, thousands of investors find the situation workable and are seeing healthy yields from their HMOs. It’s just vital that they do their homework and establish if the HMO route is one they really want to take.