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What brokers need to know about looming HMO changes

The new HMO rules for landlords that will come into force in October will extend the licensing requirements and may also affect room sizes. Brokers working within the buy-to-let market have spent the past few years getting their heads around a raft of recent regulatory and tax changes introduced to the market.

And it’s not over yet; new changes that will affect HMO landlords – as well as some landlords that might not consider themselves to own HMOs – are expected to come into force this October.

What do brokers need to know?

Last year, the government launched a consultation looking at HMOs and residential property licensing. The consultation aimed to give councils best practice guidance on standardising living conditions in HMO properties across the country.

The response to the consultation was published last December and this new legislation on licensing of HMOs is expected to pass through Parliament in the coming months, becoming enforceable in October.

Currently, properties with three or more storeys that are occupied by five or more people from two or more households require an HMO licence. However, the new rules coming into force in October will extend the scope of licensing for HMOs. An HMO licence will now be required for all properties with five or more people from two or more households, regardless of the number of storeys in the property, meaning a substantially higher number of properties will require a licence from October.

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 and 10.22 sq m for single use and two adults sharing respectively. These new rules are expected to impact approximately 170,000 properties in addition to the 60,000 that already have an HMO licence.

What should brokers be doing?

Ultimately, brokers with existing or prospective clients with HMOs must ensure they understand fully the incoming changes so that they can support their clients in the best possible way. Brokers will play a vital role in raising awareness among those landlords whose properties will soon be classified as an HMO.

In addition, the changes represent an opportunity for brokers to further advise and support their clients. For example, for those clients affected by room size requirements or looking to convert their properties into HMOs or student lets, brokers can advise on how to access the funding to undertake these changes.

How can bridging finance help landlords?

One such funding route brokers can advise on is bridging finance. This is ideal for landlords needing a short injection of cash to complete conversions quickly. Indeed, some bridging finance providers will allow borrowers to acquire finance from day one before applying for planning permission, and even those that don’t will have shorter turnaround times and greater flexibility than other lenders.

Therefore, for clients needing to make changes quickly, bridging finance could be an invaluable route of accessing funding so that they can get the changes made within the necessary timeframe. This could be particularly beneficial for landlords who have already had to make changes to properties in their portfolios to comply with EPC regulations introduced this April.

The changes also represent an opportunity for brokers to further advise and support their clients

Changes to EPC regulations mean that landlords with properties with an ‘F’ or ‘G’ energy efficiency rating are required to make changes to their properties to improve their rating, or they face significant fines. These regulations affect both commercial and residential landlords and, while residential landlords won’t typically face high costs when making improvements, commercial landlords could face real problems if they aren’t able to improve their efficiency within the short timeframe – often as little as three months.

Things to remember

As mentioned, brokers have a vital role to play in advising their clients on these new regulations. First, this will mean raising awareness to ensure those landlords whose properties are going to come under the umbrella of an HMO are not only aware of the changes but also understand the steps they will need to take in order to get a licence. This will include finding the funding necessary to increase room size if needed.

Brokers will also play a role in advising those clients who want to either convert properties into HMOs or purchase them.

One final thing to remember is that landlords will be required to renew their licence through their local council every five years. Brokers must ensure that landlords are aware of this and also that they have a licence for each individual property in their portfolio.

Source: Mortgage Strategy