Changes to the mandatory HMO licensing scheme have created confusion, so it pays to read the rulebook again.
David Whittaker stood down from the day-to-day running of Mortgages for Business in August to lead the charge at Keystone Property Finance. Whilst I might have been less vocal than my predecessor, I do have an opinion on most buy-to-let issues and am delighted to have been asked to share them with you.
The most pressing issue affecting landlords, and thus their mortgage brokers, is the changes to HMO licensing scheme, which came into force on 1 October.
The scheme has been extended to include many smaller HMOs regardless of the number of storeys such as any landlord who lets a property to five or more people from two or more separate households sharing basic amenities.
The conditions of the mandatory licence have also changed. Minimum bedroom sizes have been introduced, and there are new rules regarding waste disposal.I recommend reading “Houses in Multiple Occupation and residential property licensing reform – Guidance for Local Housing Authorities” to bring yourself up to date with the entire issue.
Whilst most landlords will be aware of these changes, many will not realise that, even if a property does not require a mandatory HMO licence, it may still need an additional or selective licence.
The only way to find out which licence is or isn’t required is to contact the local housing authority. It is also worth bearing in mind that landlords with existing licences do not need to comply with the new rules until those licences expire. The point is that you should be encouraging your clients to get clarity on the issue.
There is also a lack of clarity around how the new legislation will affect the financing of HMO property, as well as little information on how lenders will treat all HMOs in a portfolio when underwriting. Will they ask to see all licences? A sample? Perhaps they will not be checking at all. If we assume that they will check, however, non-compliance could mean no finance until the situation is rectified.
Perhaps even more pressing is the issue of landlords with mortgaged multi-lets – usually smaller HMOs which, at present, do not require a licence. Some lenders currently allow multi-lets but not licensed HMOs, so how will they deal with this situation? Presumably lenders are working on it. But for us to be good brokers we would like an answer sooner rather than later.
In the meantime, we are encouraging our landlord clients to ensure they know how the rules affect them practically, if not financially; have either the relevant licences in place or have applied for them; keep all licences handy in case they need to show them to a lender; and know when current licences are due to expire so they can make forward plans.
We will continue to educate our clients on this subject and would be delighted if lenders would join the party before the music stops. In the meantime, here are my picks of the best BTL mortgages for HMO property.
Steve Olejnik is managing director at Mortgages for Business