Could unsuspecting landlords be facing an HMO regulation timebomb?

New research carried out by Simple Landlords Insurance has found that over 85% of all landlords are unfamiliar with new laws that could force them to carry out expensive restructuring work on their properties or risk facing punitive fines.

Landlords who own homes of multiple occupancy (HMOs) will require new licences due to new proposals – which are likely to come into effect next Spring.

60,000 HMOs across the UK currently require a licence but it is estimated that a further 174,000 properties will be subject to mandatory licensing changes aimed at improving housing conditions.

Research from Simple Landlords Insurance found that 40% of HMO landlords were either unaware or did not know the detail of the changes, which will impose minimum standards on room sizes, storage facilities and waste disposal for all HMOs, including conversions and properties of multiple use.

The legislation will also do away with the requirement that all HMOs have at least three stories in order to fall within the scope of any licensing.

Under the new legislation, local councils will be also granted additional powers to adjust the benchmarks and licensing fees if they see fit. However, some property owners questioned believe that regions outside London will not be impacted because the new standards are already being met – raising concerns that more needs to be done by the Government to dispel this myth and inform all HMO landlords of the impending changes.

Alex Huntley, Head of Operations at Simple Landlords Insurance, said: “From our research and our conversations with landlords, it’s clear that not everyone is aware of the proposals for new HMO regulations. That could leave some with rooms they can no longer rent, undersized living areas – and a serious gap in their income.

Larger landlords with HMO portfolios seem to be better prepared than emerging landlords. It’s our job as an insurer to be the ‘safety net’ that gives landlords the freedom to invest while mitigating risk. This is clearly a risk, and as the 6 month countdown begins, we’d very much like to see more clarity from government so landlords aren’t caught unawares.”

The legislation will pile pressure on landlords who already face a number of financial headwinds, which include increased Stamp Duty and cuts to Buy-to-Let mortgage interest tax relief. Only 4% said they felt the Government was supportive of their efforts.

The majority of HMO-owning landlords do not intend to change their investment strategy based on the legislation. They remain among the most optimistic in terms of outlook, with 27% planning to grow their portfolios as a result of external influences – double the market average. 39% of HMO landlords intend to increase the size of their portfolios in the next 12 months.

The legislation was due to be introduced in the Spring this year, but was delayed because of the General Election.

Carl Agar, Managing Director of property management company, Big Red House, and Founder of the Home Safe Scheme, said: “The good news is that there’s likely to be a six month grace period for landlords to catch up with the new legislation following its expected introduction in April 2018.

Transferring from an unlicenced property to a mandatory one is also likely to be pretty simple, and the best news of all is that HMOs can still be a very good investment ¬– in the right area, targeting the right audience, and managed closely.

What’s more, if you’re looking to get into the HMO rental market by purchasing a new property, the banks and mortgage companies seem to be looking upon licenced properties much more favourably. At the end of the day, I believe licensing can improve the quality of accommodation – and ultimately that’s going to improve the market as a whole.”

HMO Legislation in brief: what are the changes?

The Government is proposing the following changes which will increase the number of properties that are subject to licensing:

• Removal of the three-storey rule
• Incorporate flats that are situated above or below commercial premises
• Put in place a minimum size requirement of 6.52m2 which is in line with the current standard for overcrowding (Housing Act, 1985). This size is likely to be 10m2 for HMO’s in which all tenants have their own bathroom, but share other facilities such as a kitchen.
Additional proposals include:
• A Fit & Proper Person Test for landlords looking to obtain a licence
• A requirement for landlords to provide sufficient storage facilities to deal with the holding and disposal of all household waste