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MORTGAGES FOR BUSINESS 2018 - MANDATORY HMO LICENSING

A quick guide to:

Mandatory HMO Licensing


Mandatory HMO Licensing Extension of the scheme From 1 October 2018 mandatory licensing of HMOs was extended to any landlord who lets a property to five or more people, from two separate households, sharing basic amenities. Previously, the scheme was restricted to larger properties of three or more storeys. The change in the law extended the scheme to include many smaller HMOs regardless of the number of storeys. What’s excluded? As with all these things, some HMOs which meet the above definition may be excluded from mandatory licensing, in particular: Purpose-built, multi-occupied flats in a block of 3+ A purpose-built flat in multiple occupation situated in a block comprising three or more self-contained flats. Converted blocks of flats known as Section 257 HMOs These are defined as: A building or part of a building converted into self-contained flats AND

The standard of conversion does not comply with the appropriate building standards

Less than two-thirds of the flats are owner-occupied

Mandatory licensing of these HMOs does not automatically apply; instead they are subject to management regulation, although individual flats within the block will require a mandatory licence if they meet standard HMO tests (yes! It's

complicated, so check with your local authority). What license do you need? Even if a property does not require a Mandatory Licence, it may still need a licence! i.e. either an Additional Licence or a Selective Licence. We can’t tell you what type of licence you’ll need. To find out you’ll have to seek clarification from your local authority.

New conditions As well as expanding the mandatory HMO licensing scheme, there are new conditions within the licence regarding the size of bedrooms and waste disposal which also came into effect on 1 October. Introduction of Minimum Bedroom Sizes In a bid to tackle over-crowding in HMOs, local housing authorities have to impose minimum sizes for bedrooms (or ‘sleeping rooms’ as they are called in the government’s guidance document). Landlords applying for a new mandatory HMO licence won’t be able to let a bedroom if it doesn’t meet the minimum requirement. And they won’t be able to use communal space within the HMO to make up for a bedroom that is deemed too small. Remember, if you’ve got a current licence, you won’t need to comply with this rule until the licence expires. (And in some instances, you may be given a further 18 months to comply – check with your local authority). What is the minimum bedroom size? The answer will depend upon your local


authority! The new rules set three statutory minimum sizes, but the local authority is given discretion to increase these if they see fit! So, it’s very important that you check with your local housing authority. How local authorities check minimum room sizes They will either request the information on the mandatory licence application form and/or they may choose to inspect the property. Penalties for non-compliance If you breach the rules, without a reasonable excuse, you could be convicted of a criminal offence for which the fine could be unlimited. Alternatively, if the local authority chooses not to prosecute, you could receive a fine of up to £30,000. Either way, it’s simply not worth the risk. Waste Disposal Landlords must comply with the council’s storage and waste disposal scheme – if it has one. This is because HMOs typically produce more rubbish than single family homes and the government wants to ensure that it is disposed of properly. Whilst every council is different you are likely to be required to ensure:

The HMO has sufficient waste disposal facilities inside and out

The occupiers know what waste goes in which bin, which day to put out the rubbish and ensure the bins aren’t obstructing the pavement.

Do check with your local council for details of their specific scheme. If not, the above guidance is a good rule of thumb.

How the new rules could affect BTL borrowing If your HMO does not comply with the new rules you may not be able to get a buy to let mortgage. At present, there is a lack of clarity from lenders around how the new mandatory HMO licensing rules will affect landlords looking to finance their HMOs. For example, there is relatively little information available as to how lenders plan to treat all the HMOs in a landlord’s portfolio, not just the subject property, when underwriting a mortgage application. As we don’t know, we must assume that, at some point at least, lenders may decide to check. Presumably, non-compliance will mean no finance until the situation is rectified. Presumably lenders are working on it. Or perhaps they’ve decided not to address it until it becomes an issue. But for us as mortgage advisers, to provide a good service as mortgage advisers, we’d like an answer sooner rather than later so that we can help our customers find a solution – if indeed one is required. If you need help sourcing finance to alter your HMO properties, or if you have any further questions do get in touch.

Call us on 0345 345 6788 Visit mortgagesforbusiness.co.uk ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.


MORTGAGES FOR BUSINESS 2018 - MANDATORY HMO LICENSING

Non-homeowners refinance student let HMO The client: Two brothers – a postman and a farmer, approached us looking to refinance one their rental properties. The brothers own two rental properties in total. The pair planned to use the capital raised to purchase a further rental property and repay some outstanding debt. Neither brother owns their own home. One sibling is still living with his parents, the other has moved in with a partner. The property: A five-bed HMO let to students in Southampton. The terraced house is in the heart of the city, close to the local university and train station. The brothers had originally purchased the property in 2008 for £160,000. A recent valuation indicated that the property was now worth in the region of £300,000. The finance: The brothers were looking to borrow £225,000 (75% LTV). They had requested a five-year fixed rate and were looking for capital and interest repayment terms. We approached one of the specialist lenders which is happy to accept non-homeowners. Happy with the property type and the applicants’ background experience an offer was made. Here are the details of the deal:

Property value: £300,000 Loan amount: £225,000 (75% LTV) Rate: 3.99% 5 year fixed Term: 25 years capital & interest

Call us today on

Lender arrangement fee: 2% of the loan amount Mortgage payment: £600pcm Rental income: £1,857pcm

0345 345 6788

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Mandatory HMO Licensing  

A quick guide to Mandatory HMO Licensing. - Extension of the scheme - New conditions - How the new rules could affect BTL borrowing

Mandatory HMO Licensing  

A quick guide to Mandatory HMO Licensing. - Extension of the scheme - New conditions - How the new rules could affect BTL borrowing