I’ve just written an article on some license changes in Bexley which could considerably change the landscape of Houses in Multiple Occupation (HMO) ownership in that area, which led me to thinking about the wider impact of licensing complexities for buy-to-let landlords.
Currently Medway Council follow the prescribed licensing set out by the government; that being that HMOs only require a license for buildings that are three or more storeys high and occupied by five or more people. But these rules are about to change; the Government is planning to introduce an extension to the rules in October, which will extend mandatory licensing for properties – regardless of height – that are occupied by five or more people from two or more households.
However, many local councils are taking licensing one step further and introducing additional licensing schemes and even selective licensing, which impose licensing regulations on PRS (privately rented sector) properties. These stringent license requirements could have a big impact on landlords. But is it enough to drive them out of property management completely? And how likely are Medway landlords to be affected?
Let’s consider each aspect I’ve mentioned. Firstly, Additional Licensing Schemes. This can be implemented by local authorities should they deem it necessary to extend the licensing of HMOs beyond the stipulations of mandatory licensing. Bexley, for example, have determined that all HMOs across their borough, should be licensed. No exceptions.
Then there are Selective Licensing Schemes which apply to the PRS (Privately Rented Sector). Selective licensing can be applied to particular areas of a borough, or the borough as a whole, and can only be introduced if the council is satisfied that are problems with low housing demand; or significant and persistent problems of Anti Social Behaviour (ASB) linked to the private rented homes in that area.
Currently there is no evidence to suggest that additional or selective licensing will be implemented in Medway. But with a third of London boroughs already operating selective licensing schemes (as of November 2017) and more schemes on the horizon, you have to wonder if it is something that will affect Medway in the near future. Especially as Medway’s profile is rising as being one of the most affordable commuter towns for those looking to move out of London.
Across London, there are already upwards of 29 separate additional and selective licensing schemes. And with more councils planning further implementation, licensing for landlords with large portfolios can be incredibly confusing and time consuming. Particularly as there is currently no central register for property licensing schemes. Landlords need to be on the ball, contacting the relevant local council or checking their websites. London-only landlords are luckier because London Property Licensing have succinctly pulled together all the licensing information for them. But even then, some landlords are falling short of the regulations. Just a couple of days ago I read about a case where two landlords were found guilty of management regulation breaches, failure to obtain a licence and failure to respond to statutory notices, which resulted in fines of almost £11,000.
It is clear that the ultimate aim of these licensing schemes is to drive up the standard of lettings, but the worry is always the rogue landlords who totally disregard the rules. With more licenses being issued under the revised mandatory criteria, enforcement officers will be busy ensuring licensees are adhering to their conditions. The issue with this approach is that the increased workload could overburden HMO officers, possibly making it easier for rogue landlords to evade justice and continue to negatively affect the perception of our industry.
There are other considerations for buy-to-let (specifically HMO) landlords too. Two of the biggest being Article 4 directions and taxation.
Article 4 directions are a special planning regulation which can be placed on all or part of a borough by it’s council. If Article 4 is in effect, landlords must get planning permission before converting what was formerly a family home (Class 3 home) into an HMO (Class 4 home). Bexley Council have taken the bold move of invoking Article 4 across the whole borough. In Medway, there are a number of areas which already have Article 4 directions applied. Most are in Rochester, but there are other pockets of conservation areas dotted around Medway. Full details can be found on the Medway Council website.
Obviously, this can have a massive impact on the cost of HMO property development. Fees for planning permission vary so much it’s very difficult to provide an average, but there is a handy online Fee Calculator tool, which may be of use to potential investors.
Of course, the fees for licensing need to be considered too. Particularly as increased fee costs, could eventually start to drive up rents. In Medway the fee for licensing an HMO is currently £974 but National Approved Letting Scheme (NALS) research indicates that license fees range from £125 (City of London Corporation) to £2,500 (Lewisham Council), depending on the borough.
Then there is taxation. With the Government regularly unveiling new policies which aim to cut buy-to-let activity in the privately rented sector, there is a lot for landlords to consider. The withdrawal of mortgage interest relief for higher and additional rate taxpayers, a ban on upfront letting fees and specifically, the 3% surcharge on purchases of an additional property, are making margins leaner and leaner.
Earlier this month, The Independent ran a story that the number of landlords planning to reduce the volume of properties across their portfolios has hit a 10-year high, with the NLA (National Landlords Association) estimating that 20% of landlords are planning on reducing their portfolios over the next year.
This sentiment doesn’t surprise me, as landlords have been hit by a raft of legal and tax implications which makes buy-to-let a lot less profitable. Houses of Multiple Occupation are a strategy that can overcome these difficulties as property investors are likely to get great returns on their investments. However, this is a complex discussion with lots to consider. I’d really love to hear your views on it all. Especially those who are currently landlords feeling the impact of some of the initiatives I have covered in this post.
If you are a landlord and need the advice of a HMO letting agency in Bexley, Dartford, Gravesend, Medway, Maidstone or Sittingbourne, send me an email at email@example.com,or connect with me via LinkedIn or join our discussion group over on Facebook. I’d love to hear from you. You can email me at firstname.lastname@example.org.