HMO Licences taking up to 9 months...

If you have a House of Multiple Occupation (HMO), you should now be aware of the rules that came in to effect on 1^st October.   You also be aware that some councils are behind already on the licence applications with one rumoured to be nine months behind!

To recap - any property with five or more occupants (not all related) will now need an HMO licence, as the Licensing of Houses in Multiple Occupation Order 2018 takes impact.  

Previously, the licence applied to properties with three or more stories and five or more occupants (not related to each other).  However, it was decided to change these requirements and ultimately increase the number of properties that require a licence.

These changes impact both existing and prospective HMO landlords and full details on how to obtain licences will be available on the relevant councils’ websites, alongside other requirements the individual council may have put in place.

A minimum size for bedrooms has also been implemented and the guidance will recommend that floor space be no less than 6.51sqm for a single adult and 10.22sqm for two adults sharing.  Any room with less than 4.64sqm is not to be used as sleeping accommodation.

With the possible delays in granting the license some lenders may not be willing to assist until the approval has been actually issued.  However, speak to a specialist who has access to All Types of Mortgages as some lenders are happy to proceed once the application has been made.

Finally, also remember that the surveyor is the lenders ‘eyes’ in all financial transactions.  They will value the property for both rental possibility as well as its actual value.  As this report is for the lender, they have no obligation to tell you what is in the report or give you a copy!  If you are looking to buy a property and convert it in to an HMO, you will need to let the valuer know when they visit the property as this may change the value of the property and more importantly, the rental achievable.  This could also affect the possible loan amount that the lender will allow.

New rules for Houses of Multiple Occupation (HMOs)

Concentrating on Buy to Lets this week as yet more changes are on the horizon!  With effect from 1^st October 2018, new mandatory rules will be applicable to Houses of Multiple Occupation (HMO).  Any property with five or more occupants (not all related) will now need an HMO licence, as the Licensing of Houses in Multiple Occupation Order 2018 takes impact.  

The government undertook a consultation last year designed to help councils standardise living conditions in HMO properties.  It detailed the plans to extend the scope of licencing for HMO properties. 

Currently the licence applies to properties with three or more stories and five or more occupants (not related to each other).  However, it was decided to change these requirements and ultimately increase the number of properties that require a licence.

A minimum size for bedrooms has also been implemented and the guidance will recommend that floor space be no less than 6.51sqm for a single adult and 10.22sqm for two adults sharing.  Any room with less than 4.64sqm is not to be used as sleeping accommodation.

These rules are estimated to affect around 170,000 properties (on top of the existing 60,000 licenced) and landlords that fall in to the new rules must apply for a licence or temporary exemption before 1^st October.   Failure to do so will be considered a criminal offence.

These changes will impact both existing and prospective HMO landlords and full details on how to obtain licences will be available on the relevant councils’ websites, alongside other requirements the individual council may have put in place.

In other news, our good friends at Precise Mortgages have revamped their Buy to Let product ranges and rates now start from 2.99%.  They also allow rental calculations to be assessed on the pay rate on their five year fixed rates, starting from just 3.39% and some products also allow ‘top slicing’.  This means that landlords with three or more mortgage properties, may use their income to assist with affordability on the buy to let property, if the rental income does not quite cover the loan required.  This can be complex, so speak to the experts…

New entrants to the Buy to Let market!

With the rental market continuing to be buoyant, and with no signs of declining, the mortgage market is active as lenders recognise the huge demand for Buy to Let (investment property) mortgages.   These can be from a first time landlord, right through to the experienced House of Multiple Occupation (HMO) / Student Let portfolio investor.   Deposit requirements can be as low as just 15% and as this sector has also recently been through a price war, rates are competitive (some now sub 2%) and may also come with packaged deals, such as free valuation and free legal costs.

But with so many lenders now in this sector, rates may not remain the main area of competition for much longer! Some lenders are also reviewing criteria in order to attract new business.  Many lenders historically would not allow first time landlords, anyone earning an income less than £25k per annum, those who have more than ten properties, or those who may have had previous blips on credit history, to give you a few examples.

However, we have seen recently that criteria and attitudes are being relaxed and lenders are having to compete to attract more business.  There are also a large number of new entrants to this market including Foundation Home Loans, AXIS Bank, Fleet Mortgages and Pepper Home Loans to name just a few.  Each have launched their own niche propositions and are looking to attract a certain type of Buy to Let customer.

Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.  The additional amount can be used to supplement income, or, with flexible mortgages, can be used to "overpay" the mortgage and reduce the term.

Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 125%, normally at a marginal rate of circa 5% and, after costs such as managing agents, this should leave some spare cash to cover repairs, maintenance and landlords insurance. It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while. Remember that, whatever the deal, lender terms and conditions will always apply.