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Changes to HMO licensing imminent

Chris Longhurst, consultant mortgage broker explains what the Government’s latest consultation on HMO and residential property licensing reforms means for landlords.

At the back end of last year when we were all pre-occupied with the significant HMRC changes in the pipeline and gearing up for the additional 3% stamp duty surcharge, the Government was also closing a review on extending mandatory licensing for HMOs.

For properties defined as ‘large HMOs’ licensing is already mandatory. According to the Government your property is defined as a large HMO if ALL THREE of the following apply:

  1. It is rented to five or more people who form more than one household

  2. It is at least three storeys high

  3. Tenants share toilet, bathroom and kitchen facilities

Some local authorities do currently chose to apply selective licensing on shared properties that fall outside of the mandatory requirements, but this latest announcement really will sharpen the regulator’s pencil…

The Government plans to make the following changes through secondary legislation to increase the number of properties subject to mandatory licensing:

  1. Remove the storey rule so all houses with five or more people from two or more households are within the scope of the new legislation. The Department for Communities and Local Government says this will further enable local authorities to tackle poor standards, migration and the problems being seen in high risk smaller properties as the sector has grown

  2. Extend mandatory licensing to flats above and below business premises (regardless of storeys), because, as the consultation states ‘evidence shows more problems in these properties’

  3. Set a minimum size of 6.52sq-m in line with existing overcrowding standard (Housing Act 1985) to close loophole created by upper-tier tribunal ruling, which, again according to the consultation, is enabling some landlords to let rooms far too small for an adult to legally occupy

Other proposals included:

  1. Fit and proper person test - criminal record checks for landlords to obtain a licence

  2. Adequate receptacles for the storage and disposal of household waste

Whilst these points are still only a proposal, it has been noted that they are likely to come into effect in April or October next year.

It is expected that a six month’ grace period will be offered to landlords to regularise any properties that will be affected by the changes. Penalties for landlord who aren’t compliant will be severe and could include criminal prosecutions and fines of up to £30,000.

For those landlords who already hold a selective license the switch to a mandatory license should be relatively straight forward.

These proposed changes are obviously targeted at trying to weed out the bad, but as is always the way it will be the vast majority of the good that end up with the additional bureaucratic burden.

So, be warned, sometime in 2017, if you have an HMO or if you are thinking about acquiring one you may be affected.

As always we will do our best to keep you up-to-date – once we know, you’ll know, so make sure you check our website frequently.

You may also be interested in:

HMOs – what are they and how to finance them
Houses in Multiple Occupation (HMO) are usually considered more profitable than standard rental property but what exactly are they and how easy is it to finance them? Paul Martins, expert buy to let mortgage adviser, explains.

Government intent on applying HMO license reforms, says NLA 
Following the launch of a new Government consultation that examines the detail involved in extending the mandatory licensing of houses in multiple occupation (HMO), the National Landlords Association (NLA) has said it seems clear the Government is ‘fully intent on implementing these proposals next year.’