The Licensing of Houses in Multiple Occupation Order 2018 came into effect on 1 October, changing which residential properties will be categorised as houses in multiple occupation (HMO) for mandatory licensing purposes. From now on, properties occupied by five or more people, forming two or more separate households, will be classified as HMOs. The Residential Landlords Association estimates that this will affect 160,000 properties that didn’t require a licence before.
Many houses and some flats will now be required to have mains-powered fire alarms, fire check doors and fire escape areas that could result in considerable expenditure. Also, the penalty for not obtaining a licence can be a criminal conviction, a £30,000 fine as well as being required to refund rent received.
This long-awaited extension will offer greater clarity of minimum standards, including specified minimum room sizes deemed suitable in HMOs for occupation. Prior to this, many councils interpreted the definition for licencing differently.
The new rules allow a valuer, investor or lender to accurately establish if accommodation meets minimum standards. It should enhance the stock in this sector, which until now has included HMOs with substandard living accommodation.
Many in this sector have welcomed the minimum standards, including valuers and lenders, with the legislation further professionalising the market. With many councils unable to police HMOs due to limited resources, the roll of chartered surveyors and lenders inspecting and deeming properties fit for purpose and suitable security can’t be underestimated.
However, the cost burden for investors and property owners may increase, and where rooms are excluded from letting when minimum room requirements are not met, landlords’ rental income will fall. This could affect capital values and loan-to-value covenants of properties held as security for bank lending.
Some investors may withdraw from the market. This new order is likely to result in a reduction in the supply of HMO accommodation, creating upward pressure on rents at a time when there is a need to increase affordable accommodation.
The legislation is likely to further increase the specialist nature of HMO ownership, requiring a much more professional approach from landlords. The times of amateur investors buying HMO properties for possible high returns has passed. The need to understand and comply with the licensing requirements, as well planning legislation, means HMO ownership is now best suited to those with specialist knowledge of this sector.
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