Investment In Properties
Investment In Properties | The Laymans Guide to HMO Licensing
The picture for investment in properties is changing and one of the changes has to do with new regulation introduced in the Housing Act 2004. This covers houses of multiple occupancy (HMOs), which until now has been a key area for anyone looking to make an investment in properties.
HMOs are dwellings that are occupied by more than one household, where the property is the main residence of those households. In addition, the occupants of HMOs share toilet, bathroom or cooking facilities. Many of the properties that fit that designation are targeted by those making an investment in properties. These include shared flats and houses, accommodation over shops, hostels, bed sits and part converted houses. The HMO designation does not include completely converted self contained flats.
Those who are making an investment in property often invest in student flats, which are an important part of the HMO sector. However, there have been fears that the increase in regulation will change some landlords' approach to property investment. HMOs need to be registered with and licensed by the local authority, with special standards for BTL landlords to meet. This means that investment in properties that meet the HMO designation imposes an obligation to comply with safety standards for gas, electricity and furniture as well as to rules about fire precautions, the provision of amenities and overcrowding.
BTL Licensing
Landlords making an investment in property have already found discrepancies in the way local authorities are charging for HMO licensing. The difference between licenses by different authorities can vary by more than £1,000, making the five year licence quite costly for some BTL investors. This has resulted in some landlords making investment in properties that fall outside the HMO designation and selling off properties that they might be required to licence.
HMO licensing can be complicated. The fee charged can vary depending on the local authority, the number of properties owned, the BTL landlord's membership of a landlords association and other factors. There are also differences in what landlords are required to do to bring existing BTL properties up to the mark.
Investment in property always carries some risk. However, many landlords are not prepared to risk the fines of up to £20,000 for unlicensed properties, nor are they prepared to spend huge sums on refurbishment. One of the fears is that investment in property for student occupation may suffer, putting the student housing sector under further strain. This is certainly the view of the Royal Institution of Chartered Surveyors. Meanwhile the criteria for loans in the HMO sector could become tougher, with lower loan to value ratios and tighter lending criteria.
However, it's not all bad news for investment in properties in this sector. The exodus of so many could leave opportunities for those who are prepared to spend the money to comply with the new rules. And if your local authority is soft rather than tough, it may be a good time to think about investment in properties for the student sector.
