Commercial Insurance Articles

Will new legislation mark an end to HMOs in some areas?

30 Nov 2009

Houses of multiple occupancy (HMO) have long been a good investment for landlords who own larger properties, with students providing annual contracts and often not needing every room to be a double. However, recent debate may lead to restrictions on the number of these houses and where they can be located, which could lead to loss of money for some landlords.

The homes are defined as properties rented to six or more people who are unrelated and those who share a kitchen and bathroom but have separate bedrooms. Typically they are rented out to students, but groups such as migrant workers also benefit from them.

Earlier this year, the government issued a paper which outlined possible changes which would take place in the HMO licensing system. It also detailed the potential problems of having lots of HMOs in one area, including parking issues, anti-social behaviour and the character of the region being altered.

The document detailed the potential planning responses there could be and how this would impact landlords. Local council can already select an area of their district to have restricted numbers of HMOs, but such an order must meet certain requirements. However, the report came up with a number of options, including managing the situation without additional legislation, allowing for tighter planning controls on HMOs and changing the law to stop certain properties having multiple occupants.

In the final option, local planning policies could decide whether there is a need to restrict licenses, with the report stating: "This approach would allow those authorities wishing to control HMOs to do so without extending the burden to those authorities without problems." However, a potential negative of the plans was that removing the need for planning permission to convert abodes into HMOs may create alternative problems.

Potential issues were also noted in the second option, with the government stating that amending the use classes order in relation to HMOs would likely lead to more planning applications for HMOs, create additional burden for landlords and impact on other C3 dwellings such as care homes.

However, the plans have been met by criticism from some groups, who claim that they will hamper investments and have not been thought through. The Residential Landlords Association (RLA) said that the plans will only have an effect in the short term and would create housing problems for students and immigrants. Landlords could also be hit by the moves, which would leave many with large houses that are un-rentable.

Mark Butterworth, a director at the RLA, said: "It's a small and vocal group of MPs who have formulated this policy and got the support of the new housing minister, but nobody seems to have thought it through."

The National Union of Students (NUS) backed up this criticism, saying that it will create "ghettos" of students and described it as a knee-jerk reaction to "studentification". Wes Streeting, president of the organisation, added students would be poorly affected by the plans and would be forced to pay private companies to live in large students areas away from general residents.

The British Property Federation (BPF), the National Landlords Association and the Residential Landlords Association joined the NUS's campaign and said that planning policy cannot be used as a method of social engineering.

Liz Peace, chief executive of the BPF, said: "Only a tiny fraction of places suffer from a high concentrations of HMOs and using a broad brush approach to deal with different issues relating to anti-social behaviour makes no sense."

While many think it is just students who live in HMOs, Mr Streeting said that many young professionals will also be affected, as would migrant workers.

However, the National HMO Lobby backs the report, saying that it works to avoid communities being destabilised by concentrations of shared housing. The organisation added that part of its objectives is also to ensure licensing of HMOs is fully carried out and that areas where concentrations of shared housing develops local authorities should have the power to license all the houses.

Licensing of HMOs is rapidly becoming a big problems for landlords, with this month alone seeing a number of prosecutions or fines being issued for not having the correct paperwork for a house. Landlords need a license if the home meets certain criteria, such as being occupied by five or more people and being over three floors or more, including a basement or attic that has been converted. The license also states that certain requirements must be met before the permit will be granted.

Such convictions include the case of Patricia Preston, of the Ryburn Guest House on Woodfield Road in South Shore, Blackpool, who was charged £1,000 for operating an HMO without the correct license. The leasehold will also see all the cash paid in housing benefits by her tenants recouped, which could be in excess of £20,000.

Another case saw Kirsty Frost, from Basildon, fined more than £5,000 for renting out rooms in her own home without the correct license. The landlord pleaded guilty and was also found to have not fitted smoke detectors, fire doors or emergency lighting.

Tony Ball, leader of Basildon Council, said: "I hope that this conviction will act as a warning to people who are using their properties as HMOs without a license."

But what will the affect of these licenses do to prospective landlords? Property Hawk, a landlord information and advice website, said that the additional cost of meeting the license requirements has put many amateur landlords off investing.

Chris Horne, editor of the website, said the potential cost of things like fire systems, which can be priced at between £5,000 and £10,000, puts off many landlords. Speaking about the HMO sector, he added: "It's become more of a specialist sector within the private rented sector, which more experienced and larger landlords are concentrating on and becoming dominant within that sector."

The expert added that some landlords may be falling foul of the licensing laws, as they are not aware of the restrictions and find them confusing. He said HMO licensing is covered by many areas of the law and that some leaseholders may not have the correct licensing but are unaware of this.

Further restrictions on licensing, as laid out in the government report, may lead to more awareness of it, but may put landlords off for different reasons, as getting a license for multiple occupancy in certain areas could become more problematic.