All change for HMO licensing rules
The Government has introduced new rules regarding licensing of houses in multiple occupation (HMO) that will mean a substantially higher number of properties will require a licence.
From 1st October, an HMO licence will be needed for properties occupied by five or more people from two or more separate households, regardless of the number of storeys.
Landlords will have to obtain a mandatory licence where their property meets the following criteria:
- is occupied by five or more persons
- is occupied by persons living in two or more separate households; and meets-
- the standard test under section 254(2) of the Act;
- the self-contained flat test under section 254(3) of the Act but is not a purpose-built flat situated in a block comprising three or more self-contained flats; or
- the converted building test under section 254(4) of the Act.
The new HMO licensing requirements spell big changes for some landlords, with the RLA estimating that an additional 177,000 properties will become subject to the mandatory licensing. So, do take time to read the full order to consider how this may affect your portfolio.
In addition to extending the licensing requirements, the government is also proposing the introduction of a minimum room size for bedrooms in licensed HMOs. The new guidance will recommend floor space be no less than 6.51 sq m for single use and 10.22 sq m for two adults sharing.
The new law is likely to affect how landlord’s finance HMOs. If you are affected by the room size requirements or want to either convert properties into HMOs or to purchase them, and need to do this quickly, bridging finance could be an effective means of raising funds.
The main benefits of bridging finance are the speed and flexibility the product offers. A bridging finance lender has the ability to provide a large amount of funding, in a short time-frame- typically a bridging loan on an HMO can usually be secured within 15 working days.
At mtf, we allow our clients to acquire finance from day one, before applying for planning permission, allowing for shorter turnaround times which could prove invaluable to those landlords needing to act quickly.
As an example, we were recently approached by a client looking to raise £215,250 to purchase a property of 10 flats and carry out some refurbishment works. The client needed to act quickly so not to miss out on the opportunity. In just under 3 weeks, mtf provided a £214,000 loan at 65% LTV, based on an open market value of £330,000. Interest was retained at 0.9% per month, over a 12-month term, with no exit fees or ERCs. No personal guarantees were required.
Our bridging loan gave the client the funds to buy the property quickly and the 12-month term bought them the time needed to carry out the works to significantly increase the rental value of the property. The client then refinanced out of the bridge with a traditional buy-to-let mortgage from a bank, against the higher value.
Our HMO criteria:
- 65% LTV on purchase or refinance
- Rates from 0.85%
- Terms from 3 – 24 months
- Individual shared self-contained flats/ converted flat
- Adverse credit, CCJs and arrears considered
- No upfront fees/ no exits fees/ no ERCs
- No personal guarantees required
If you have a property in mind or are looking to complete soon, get in touch today to see if we can help.