Mandatory HMO Licensing Part 3: How the new rules could affect buy to let borrowing

Written by Jeni Browne

From 1 October you might not be able to get a buy to let mortgage if your HMO doesn’t comply with the new rules, as Jeni Browne explains.

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 after 1 October 2018.

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.

Will lenders be asking landlords to provide copies of all their licences? Will lenders be checking just a sample of properties in the portfolio to ensure compliance? Perhaps they won’t be checking at all.

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.

Perhaps more pressing is the issue of landlords with multi-lets - usually smaller HMOs which don’t at present require a licence? No doubt, many of these properties will be caught under the new licensing rules. What you may not know, is that some lenders currently lend on multi-lets but not licensed HMOs. This begs the question: How will the lenders deal with this situation when the rules change? Surely, some landlords will find themselves with properties which no longer meet the borrowing criteria? For now, we simply don’t know the answer.

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.

In the meantime, if you are an HMO landlord or are about to become one, I would encourage you to ensure that you:

Know how the new rules affect you and your properties.
Have either the relevant licences in place or have applied for them.
Keep all licences handy in case you need to show them to a lender.
Know now when any current licences are due to expire so that you can make forward plans. (Perhaps you’ll need finance to make alterations. Perhaps you’ll have to cease letting a bedroom because it’s too small – these issues need to be resolved before they become insurmountable problems).

Carpe Diem – seize the day. We will continue to keep you updated as and when we have news, so do sign up to our Investor Update to be kept in the loop.

In the meantime, if you have any particular question, please do get in touch sooner rather than later. As usual, our main line is 0345 345 6788 or you can contact your consultant directly.

You can find the rest of our series here, read part one and two now:

Mandatory HMO Licensing Part 1: Extension of the scheme
Even if a property does not require a Mandatory Licence, it may still need a licence!

Mandatory HMO Licensing Part 2: New conditions
New minimum bedroom sizes and rules for the disposal of waste. Here’s what you need to know...