HMO Letters Another Financial Blow for Landlords

Tens of thousands of landlords are set to receive letters from their mortgage lenders after changing the legal definition of houses in multiple occupations requiring a licence. A legislation update on October 1 2018, in England, changed the definition and meant around 175,000 shared rented homes now needed licensing as an HMO - which could be another financial blow to landlords. Axing mortgage interest relief and capital gains tax changes in Budget 2018 are already impacting the profitability of property businesses.

Now, mortgage lenders are writing to HMO landlords demanding that they switch their properties back to single buy to lets or repay their loans. The lenders argue that mortgages would not have been granted if the homes were licensable HMOs at the time of application, and continuing to rent them as licensed shared houses breach the conditions of their loans. 

David Whittaker, chief executive of Keystone Property Finance and Adrian Moloney, sales director for OneSavings Bank, explained at the Financial Services Expo Midlands that some landlords already had letters from their lenders pointing out properties now needed a licence.

"Landlords are punch-drunk from the regulatory changes of the last few years,” said Whittaker. 

"This is the law of unintended consequences in full effect and you would expect some common sense from lenders. Lenders should say that, as long as there are no changes to the property or that the landlord doesn’t want a further advance, that they can keep the loan."

Previously, only homes over three or more floors with five or more tenants sharing cooking and bathroom facilities needed a mandatory HMO licence. Now, any property shared by at least five tenants is a licensable HMO, bringing thousands of more homes into the licensing net.

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Licensing of Private Rented Properties

The Housing Act 2004 introduced licensing of private rented premises. It is compulsory to license larger, higher-risk dwellings, but local authorities are also able to license other types of rented premises, including other lower-risk HMOs and individual houses and flats, if they can establish that other avenues for tackling problems in these properties have been exhausted.

Houses in Multiple Occupation (HMO)

Special requirements apply to types of properties known as Houses in Multiple Occupation (HMOs) which place special responsibilities on landlords and agents.