On 6 April 2006 mandatory HMO licensing came into force across England. If you let a property which is occupied by three or more tenants, who form two or more households, and they share a bathroom, kitchen or toilet, then it is likely that you are venturing into HMO territory.
The www.propertylicence.gov.uk (update 2010: site has been taken down) site give a full breakdown of definitions and very useful interactive guide to establishing the status of a property. The site also points out that failure to apply for a license is a criminal offence and can result in a fine of up to £20,000, and even lead to a landlord being forced to pay rent back to tenants.
According to the government HMO licensing was brought it to raise the management and amenity standards in rented property. Because HMO’s were perceived as being of a poor standard they were targeted for specific legislation.
A HMO licenses is granted by a local housing authority if they are satisfied that the property is reasonably suitable for occupation by multiple households or persons. The local authority also have the power to impose conditions and a limit on the maximum number of occupants.
When the licensing scheme came in to effect there was some controversy surrounding the implication of fees. With local authorities free to charge what they liked landlords felt that they were being penalised for owning property in the wrong area. As well as concerns over the funding of the scheme commentators were also worried about the effect the scheme would have on student accommodation and rents in general.
Around the time that the HMO scheme was being implemented, some landlords were trying to get rid of any properties that would be affected by the new regulations. And at the same time many buy-to-let lenders also started to exclude susceptible properties.
However, many landlords and lenders are starting to see the benefits of having HMO’s in their portfolios. One advantage of a HMO is that by definition the income from the property is coming from different sources. The biggest attraction however, is that rental yields can be substantially higher than conventional buy to let property.
So, whilst there are challenges to be met, it would appear that a well managed and properly licensed HMO can be a valuable part of an investment portfolio.
[tags]hmo, buy to let[/tags]