Marijana No Comments

Tighter regulation makes HMO investment an area for specialists

The Licensing of Houses in Multiple Occupation Order 2018 came into effect on 1 October, changing which residential properties will be categorised as houses in multiple occupation (HMO) for mandatory licensing purposes. From now on, properties occupied by five or more people, forming two or more separate households, will be classified as HMOs. The Residential Landlords Association estimates that this will affect 160,000 properties that didn’t require a licence before.

Many houses and some flats will now be required to have mains-powered fire alarms, fire check doors and fire escape areas that could result in considerable expenditure. Also, the penalty for not obtaining a licence can be a criminal conviction, a £30,000 fine as well as being required to refund rent received.

This long-awaited extension will offer greater clarity of minimum standards, including specified minimum room sizes deemed suitable in HMOs for occupation. Prior to this, many councils interpreted the definition for licencing differently.

The new rules allow a valuer, investor or lender to accurately establish if accommodation meets minimum standards. It should enhance the stock in this sector, which until now has included HMOs with substandard living accommodation.

Many in this sector have welcomed the minimum standards, including valuers and lenders, with the legislation further professionalising the market. With many councils unable to police HMOs due to limited resources, the roll of chartered surveyors and lenders inspecting and deeming properties fit for purpose and suitable security can’t be underestimated.

However, the cost burden for investors and property owners may increase, and where rooms are excluded from letting when minimum room requirements are not met, landlords’ rental income will fall. This could affect capital values and loan-to-value covenants of properties held as security for bank lending.

Some investors may withdraw from the market. This new order is likely to result in a reduction in the supply of HMO accommodation, creating upward pressure on rents at a time when there is a need to increase affordable accommodation.

The legislation is likely to further increase the specialist nature of HMO ownership, requiring a much more professional approach from landlords. The times of amateur investors buying HMO properties for possible high returns has passed. The need to understand and comply with the licensing requirements, as well planning legislation, means HMO ownership is now best suited to those with specialist knowledge of this sector.

Source: Property Week

Marijana No Comments

Small landlords will dwindle away

The private rental sector of the future will be dominated by larger institutional landlords as the number of hobbyist landlords decreases.

This prediction is from Roma Finance, the specialist bridging finance and development lender, who reports that more and more landlords are using limited companies to maximise tax efficiencies on their investments – and this is set to continue.

Those landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.

However, with the number of landlords reducing this won’t affect the number of buy-to-let properties available for rent, but extra administration costs could ultimately increase the rents charged to tenants.

Roma says that landlords are evolving in many different ways, from the legal structure of their holdings, the make-up of their portfolios, the quality requirements they will have to adhere to and the way they will finance properties going forward.

New HMO rules

An area of concern is the impact of the new Houses in Multiple Occupation (HMO) regulations coming into force on 1 October. The number of storeys will be removed from the definition of HMO and minimum room sizes will be set.

Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. The Residential Landlords Association estimates that in the UK this will affect an extra 177,000 properties.

EPC ratings

The new EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.

Roma says this provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.

Opportunities for lenders

From a lending perspective, Roma predicts that more lenders will opt for unique or tailored rates and criteria for each transaction. There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account.

Scott Marshall, managing director of Roma Finance, commented: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords. The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.

“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation.  With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.

“However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market. But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”

Source: Mortgage Finance Gazette

Marijana No Comments

Wirral Rogue Landlord Guilty Of 45 Charges

A rogue landlord has pleaded guilty to 45 charges relating to poorly maintained properties in Wirral.

Gary Fixter from Chester was prosecuted by Wirral Council under the Housing Act 2004. He was fined £32,000 and told that he must pay £13,611 in costs after he admitted to the offences at a hearing at Liverpool Crown Court.

Fixter was accused of failing to comply with improvement notices as well as breaches of Houses in Multiple Occupation (HMO) management regulations. He also failed to produce necessary documents upon request.

The documents in question related to his ownership and management of two HMOs. One was located on on Alexandra Road in Birkenhead, the other on Rake Lane in Wallasey. Fixter also owned a self-contained flat on Grange Road, West Kirby.

The improvement notices were served when Wirral Council’s Housing Standards Team carried out inspections. The inspections found that each property was in serious disrepair. There was also evidence of inadequate property management which had seriously endangered the health of tenants putting them at risk.

The council officers also discovered various defects or hazards which rendered most of the living conditions unacceptable. This also posed a risk to the health and safety of the tenants.

The inspection also revealed serious hazards such as long term penetrating dampness. There were also defective fire alarm systems which endangered the lives of the tenants in the property through compromising their abilities to escape the building in the event of a fire. There were also dangerous and untested electrical installations which required substantial work to make them safe, something the landlord had thus far failed to do to the standard expected.

This was not Fixter’s first brush with the law through a local authority. He was first prosecuted at Scarborough Magistrates Court due to previous breaches of HMO regulations.

Source: Residential Landlord