- It is occupied by five or more persons;
- It is occupied by persons living in two or more separate households; and meets the standard test under section 254(2) of the Act;
- The self-contained flat test under section 254(3) of the Act but is not a purpose-built flat situated in a block comprising three or more self-contained flats; or
- The converted building test under section 254(4) of the Act.
Futhermore, and perhaps most critically, the three-storey rule no longer applies, so HMOs meeting the above criteria will be licensable for one, two, three or more storeys.
Alongside this change is the introduction of minimum room sizes, meaning it will be illegal to let a room that is less than 6.51 metres squared for single occupancy. This increases to 10.22 metres squared for double occupancy.
The government previously announced there would be a grace period of six months. This has been retracted and now all applications for a licence must be made by 1 October 2018, when the new legislation comes into force.
Government estimates show that around an additional 160,000 properties will be classified as HMOs, increasing the workloads for local authorities to administer these schemes. We believe this number is too low, and if there are delays from local authorities in awarding these certificates, lenders will not be able to lend.
If landlords aren’t aware of these regulations now, they will only find out when the lender does their valuations.
<160,000 – the number of additional properties set to be classified as HMOs
The valuing agent will then see that it should be an HMO and thus advise the lender not to lend. The landlords will have paid for the valuation and searches, among other charges, meaning they will be out of pocket; advisers should be reviewing their clients' portfolios now to understand whether any of their properties fall under the new HMO classification.
We have already seen predictions from lenders that there will be a rush in applications for finance in the coming weeks as landlords seek to remortgage ahead of the autumn, which is no surprise from our perspective, not least because failure to meet the required licensing standards could see landlords hit by an unlimited fine.
One of the sectors likely to be most affected, and consequently hardest hit, is student accommodation. It has been a real growth sector in recent years for developers and investors, with city centre high-rise schemes appearing up and down the country, so owners of these types of homes will face a significant amount of work and cost to comply with the legislation.
For advisers with clients who are landlords it is hard to predict the actual impact come October.
