Commercial lenders will expect professional standards and houses in order following the HMO changes
Landlords have been through a tumultuous time recently, and the raft of legislative changes show little sign of letting up. Hot on the heels of EPC issues, stress testing and the General Data Protection Regulation, there is more to come.
From 1 October, the houses in multiple occupation mandatory licensing scheme will be extended. Currently, a landlord only needs a licence for a property that is three or more storeys and has five or more tenants, but the government is widening its scope.
The new rules mean that landlords will need a licence for all multi-occupied properties where there are five or more occupants from two or more separate families, regardless of the number of storeys it has.
They will also need a licence if the property is a converted building with living accommodation or one comprised of self-contained flats. It even applies to purpose-built flats if they contain two or more separate households. This is regardless of the number of flats and whether they are above or below commercial premises.
New property realm
So, any landlord renting out a property with five or more occupants that are not part of one family will need to apply for an HMO licence. This will bring a whole new realm of property up and down the high street under the licensing scheme.
What is more, it is not the landlord who is licensed but each individual qualifying property.
With this in mind, significantly more landlords will need to ensure that they are compliant or face significant fines. Indeed, for the properties about to be classified as HMO, it will not merely be a case of the landlord getting a licence; standards are stricter for HMO-licensed properties, so many will need to be brought up to the
Mortgage brokers should make sure that their clients are aware of these changes, particularly those who may not even realise that they are becoming an HMO landlord.
Clients who have properties that will be reclassified need to be advised accordingly to avoid any penalty fines.
But what better way for a broker to add value than by communicating these changes effectively with clients and supporting them throughout in order to ensure they are not caught out from the licensing or future lending point of view?
Securing finance on a property that will become an HMO may get more challenging, and any properties that are part of a portfolio but have yet to be brought up to standard could affect the lending to the whole portfolio.
This is something brokers must start addressing and planning for now when remortgaging a client’s portfolio. Even when presenting a finance proposition before October, the broker must acknowledge changes that may be required to any of the properties in the portfolio and plan these accordingly.
While specialist commercial players will be more used to lending on HMOs, they will also be more used to dealing with experienced professional landlords. They will therefore expect the property to be at the required standard and the licensing in order before considering lending.
It is not going to be easy but let’s focus on the positive: what an opportunity this presents for brokers to build relationships with valuable landlord clients.
Kevin Thomson is sales director at Connect for Intermediaries