The HMO market is growing in popularity within the Buy to Let (BTL) market as it is potentially more financially rewarding than standard BTLs under the revised income tax regime. So, for anyone who already owns BTL property, or is thinking about investing in it, here is a brief explanation of the main points of change in case you need to take any prompt action......

Licensing requirements may vary between local authority areas but it will be illegal to operate or manage an HMO if you don't have the appropriate license, with the possibility that fines of up to £30,000 can be imposed.

If you need to apply for a license you will need to supply additional information with the application, such as;

• a current gas safety certificate
• a current electrical installation condition report (EICR)
• a written fire risk assessment
• a plan of the property showing room sizes, numbers of rooms and numbers of occupiers in each room
• an Energy Performance Certificate (EPC)

What are the changes?

One of the most important changes is that the property no longer has to be 3 storeys or above to qualify, meaning that flats, bungalows and standard 2 storey properties will now be included in that category. So whether you own a house, flat or single storey dwelling, it is likely to be considered an HMO if:

• It is occupied by 5 or more people;
• who form 2 or more households (i.e. the occupants are not all members of the same family);
• and who generally share 1 or more basic amenities (i.e. kitchen, bathroom or toilet)

Please note there may be some exceptions to this, and if you have any doubts regarding the status of a property you own then you should take specialist advice and/or check with the Local Authority immediately. Unfortunately, some Authorities (including Brentwood Borough Council) have yet to update the information on their websites (at the time of writing), but a really helpful point of reference can be found at www.colchester.gov.uk

A minimum room size requirement will be imposed depending on whether it is considered a single or double room. In order to qualify as suitable for occupation you would need to make sure any rooms in your property meet these minimum standards. Again, these may vary across geographic areas so please check this immediately with your local authority to avoid any complications.

What are the consequences?

Apart from the potential to be fined heavily, if the property is mortgaged with a Lender that does not support HMO lending then you could be in breach of your mortgage conditions and may need to switch to an alternative lender. HMOs often have different criteria to standard BTL mortgages and may be underwritten differently, which may affect the eligibility of the property. You may also incur some cost in switching.

Any change in the property may affect the amount of rent you can charge, for example, if you are letting a single room that is smaller than the minimum room size standard then you would no longer be able to let that out. This could potentially reduce the amount of rent you can charge and again, possibly result in a breach of your mortgage conditions.

A Landlord without a valid license cannot evict a tenant and in certain cases, rent from housing benefit or paid by tenants themselves can be reclaimed if a landlord is found to be operating a licensable HMO without a license.

What do I do know?

Don't panic, but if you suspect your property may be newly categorized as an HMO under the new legislation you need to act very quickly to verify that with the relevant local authority and make an application for a license immediately, if required. If you need to review your mortgage or have any questions please don't hesitate to contact us for assistance!