Landlords who rent properties to multiple tenants face tough new licensing rules designed to protect tenants from next month.
HMO licensing – which stands for houses in multiple occupation – already applies to landlords who rent their properties to five or more tenants from two or more different households where the property is three or more storeys.
But from 1 October, any property let to five or more tenants from two or more households will be caught by the rules – regardless of the number of floors.
It means that 177,000 landlords across the UK will have to meet new minimum standards on room size and safety or face fines up to £30,000 and even criminal prosecution.
Any house with five or more people from two or more households will be considered a HMO
The move is part of a wider Government effort to crack down on poor living conditions, overcrowding and tackle slum landlords who get away with cramming tenants into tiny flats.
But it also means that thousands of landlords who do a good job and offer high quality accommodation to their tenants will also have to comply with the rules, which could mean costly refits.
What is an HMO?
An HMO stands for a house in multiple occupation. It is any property let to five or more tenants who come from two or more different households and at the moment, licensing only applies where the property is three or more storeys.
Think typical student housing and properties let to young professionals in city centres.
HMOs are increasingly common as a buy-to-let investment for a few reasons.
Because the property is let to a number of different tenants, if one tenant falls behind on their rent, the landlord is usually still able to cover their mortgage payments from the rental income from the other tenants.
Letting to multiple tenants on different tenancy agreements also means that landlords can generate higher rental incomes.
For example, letting a three-bed house to a family might generate £2,500 rent a month.
Letting the same property to three separate tenants might allow you to charge each one £1,000 a month, stepping up overall income to £3,000.
Following several changes to mortgage rules and tax treatment over the past few years, buy-to-let has become less profitable. Because this type of property offers higher returns, many landlords have sold out of lower profit properties and reinvested in HMOs.
Why is HMO licensing being extended?
The Government argues that people living in properties not built, but used, for multiple occupation run the risk of overcrowding and fire.
It argues that some housing has been used by ‘opportunistic rogue landlords’ who exploit vulnerable tenants, and rent ‘sub-standard, overcrowded and dangerous accommodation’.
As with breaching the licence, failure to obtain one can result in fines and a criminal record
Will you need an HMO licence after 1 October?
While the existing HMO rules apply to around 60,000 landlords in the UK, the scope of licensing is being extended to capture 177,000 landlords from next month.
Any property let to five or more tenants from two or more different households will require a licence after 1 October.
Depending on the local authority, some licences may require vetting for both landlords and tenants – particularly in areas where anti-social behaviour is more common.
Minimum bedroom sizes will also be introduced for all tenants after this date in a bid to clamp down on overcrowding.
And landlords will have to provide an adequate number of bins for each HMO, or could face fines.
If a landlord already has a selective or additional licence, as many will in certain boroughs, they may also come under the scope of mandatory HMO licencing from 1 October.
Having an existing licence does not mean the new rules won’t apply however, and you may have to apply for a different type of licence when yours expires.
Check with your local council to see what’s expected of you.
What happens if a landlord doesn’t comply?
Your local authority may decide to request details of room sizes that are used for sleeping accommodation as part of the application process – and they may also choose to inspect properties at their discretion.
If a landlord breaks these rules and is convicted, they are liable to an unlimited fine, or the local housing authority may impose a financial penalty of up to £30,000 as an alternative to prosecution.
The local housing authority must allow a ‘reasonable period’ of up to 18 months for any overcrowding problems to be solved once identified.
How do you apply for an HMO licence?
If it turns out you need a mandatory HMO licence, you’ll need to apply to your local council.
They’ll most likely want to see a floor plan, and you’ll need to pay an application fee. These fees vary by council but are usually around £500 and last for five years.
Once you’ve submitted your application you will have to be vetted by the council before you receive your licence. Check with your local council to see what their specific rules are.
As with breaching the licence, failure to obtain one can result in prosecution, fines, and a criminal record – and you must apply by 1 October.