All change for HMO licensing rules
The British Government has introduced new rules regarding licensing of houses in multiple occupation (HMO) that will mean a substantially higher number of properties will require a licence.
From 01 October 2018, an HMO licence will be needed for properties occupied by five or more people from two or more separate households, regardless of the number of storeys. The new rules apply to HMOs in England, but not to converted blocks of flats, to which section 257 of the Act 2004 applies.
According to Gareth Lewis, commercial director of short term finance lender mtf, the new law will have an impact for some landlords and is likely to particularly affect how landlords finance HMOs.
He pointed out that the Residential Landlords Association (RLA) estimates that an additional 177,000 properties will be impacted by the rules. Those who fail to comply with the new regulations will be open to potentially unlimited fines.
In addition to extending the licensing requirements, the Government is also proposing the introduction of a minimum room size for bedrooms in licensed HMOs. The new guidance will recommend floor space be no less than 6.51 square meters for sole use and 10.22 square meters for two adults sharing.
‘If you are affected by the room size requirements or want to either convert properties into HMOs or to purchase them, and need to do this quickly, bridging finance could be an effective means of raising funds,’ said Lewis.
According to Lewis the main benefits of bridging finance are the speed and flexibility the product offers. ‘A bridging finance lender has the ability to provide a large amount of funding in a short timeframe. Typically a bridging loan on an HMO can usually be secured within 15 working days,’ he explained.
‘At mtf, we allow our clients to acquire finance from day one, before applying for planning permission, allowing for shorter turnaround times which could prove invaluable to those landlords needing to act quickly.
‘As an example, we were recently approached by a client looking to raise £215,250 to purchase a property of 10 flats and carry out some refurbishment works. The client needed to act quickly so not to miss out on the opportunity’, he added.
In just under three weeks, the firm provided a bridging loan at 65% LTV, based on an open market value of £330,000. Interest was retained at 0.9% per month, over a 12 month term, with no exit fees or ERCs. No personal guarantees were required.
‘Our bridging loan gave the client the funds to buy the property quickly and the 12 month term bought them the time needed to carry out the works to significantly increase the rental value of the property. The client then refinanced out of the bridge with a traditional buy to let mortgage from a bank, against the higher value’, Lewis explained.
According to Lewis the landscape for buy to let investors has changed dramatically over the years, with many affected by the political uncertainty from ongoing Brexit negotiations, combined with the barrage of tax and legislation changes.
‘The need for reliable, transparent, and quick access to funds is ever critical and specialist finance, such as bridging loans, should continue to pick up where a more personalised approach to underwriting is required,’ said Lewis.
‘With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity. At mtf, we remain positive and our appetite to lend to property investors has never been stronger,’ he concluded.
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