Many landlords who have been renting out a property with possibly 3 - 4 bedrooms to sharers without the requirement for a HMO licence are not aware of the new legislation which came into force on the 1st October 2018.

This was highlighted to me last Thursday when I carried out a viewing at a 3 bedroom property we have in Dunstable. The viewer turned out to be an investor looking to turn the house into shared accommodation using a ‘Rent to Rent’ strategy. This could include couples sharing the double bedrooms.

What is ‘Rent to Rent’ ?

This is an investment strategy which has increased in popularity in the last 5 years as the investor does not have to buy a property to be able to rent it to tenants. Usually a 3 bedroom house with a separate dining room and lounge is required as the investor is paying to rent a 3 bedroom house, but can have 4 bedrooms by using the dining room as the 4th bedroom.

How does this work ?

• The investor takes on a property from a landlord on a long term agreement with a guaranteed rent to the landlord even if the property is empty.
• The investor then rents out the 3 bedrooms individually and also uses the separate dining room as a 4th bedroom.
• The rental income could be up to double.

From 1st October 2018 Tenants living in shared houses in England could face eviction or increases in rent because of changes to government rules covering shared accommodation which have requires more HMO’s to require a licence.

Under the old licensing scheme HMOs that were three or more storeys and occupied by five or more people forming at least two separate households were required to be licensed. The new mandatory licensing of HMOs has been extended so that smaller properties (i.e. any storey height) that house five or more people in two or more separate households will also require a licence.

What the HMO changes will mean for landlords

• If you let a property to five or more tenants from two or more households, you will need to apply to your local authority for an HMO licence, irrespective of building size.
• All bedrooms in any such property will be subject to a minimum room size. For a single room, this is 6.51 square metres and for a double, 10.22 square metres. Landlords have up to 18 months to comply with this.
• As a requirement of the HMO licence, landlords will have to provide suitable facilities for rubbish storage and disposal as stipulated by their local authority.
• A licence is valid for five years and each HMO property requires a separate licence.

• Any landlord who hasn’t applied for a new licence by 1 October 2018 will be in breach of the law.

 
Landlords who suddenly find that they now have a licensable HMO which has extra costs associated with it are likely to look to pass on that additional cost in the price, meaning tenants will pay more in rent.

I have taken the last few weeks to assess what is currently happening in the UK housing market and economy at the moment. It would seem to me that the with the rental/sales market the way it is there is more to be gained from ensuring that landlords are making the most out of their current properties whilst looking for opportunities in a subdued sales market.

There are many mixed messages coming out at the moment:

• Unemployment down
• More people in work than ever before
• Depending on which Building Society/Bank/Office of National Statistics/RICS report you read the housing market is either in decline or still rising.
• Big Name High Street Stores closing whist the online retailers such as Amazon in Dunstable are employing thousands locally.
• Of course the favourite word to use to blame on anything that is going wrong at the moment ‘BREXIT’

I worked in Architecture for almost 30 years and we knew that every 10 years there would be a housing/construction slowdown. The last one in 2008 partly as a result of the Financial Crash which was mostly down to borrowing and bad mortgages on overpriced property. 10 years later with property prices again having reached unaffordable levels it seems the blame for the housing slowdown must be on Brexit ?

When Brexit does happen it is likely to affect many areas of our lives and these could be positive and negative, no one knows yet, but right now I believe a slowdown in the housing market is due to affordability and the need for houses to become more affordable from the bottom up.

It is evident that whatever happens in the London Housing Market then starts to ripple out to the rest of the country and it is a ripple. The London Market has been static/in decline for almost 2 years and we began to feel that in Dunstable and Leighton Buzzard about a year ago. This is now being felt in the midlands whilst further north and in areas of Scotland they are still in a rising market in many areas.

The Dunstable and Leighton Buzzard Housing market is currently very static and some would say a house price correction is taking place as you see many properties on the market for many months and having their asking prices reduced.

Is this a bad thing? Of course not ! The house prices in Dunstable and Houghton Regis had increased by eye watering levels over the last few years and this isn’t sustainable and was always going to come to a stop.

So what now ?

If you bought your house as a home it is still your home and you make it that. If you bought a property recently as an investor it should be a 10 year investment so looking at housing market cycles you should be ok too unless you were expecting capital gains on the property in the short term.

If you are a landlord investor you need to make sure your property is making a healthy return on your investment and that you are staying on the right side of any current and new legislations covering the rental sector.

I am still surprised weekly when talking to landlords and investors about their properties at how many are falling foul of the law. Usually I am told they are too busy with their own lives to make sure their properties and procedures are compliant and don’t have an agent to take care of this for them. In the last week I have met 2 landlords who fell foul of the basic requirements. One who didn’t have the required smoke alarms and the other who didn’t have a tenants deposit registered with a Deposit Scheme.

In the coming weeks I will produce some articles which will focus on the following topics that are a mix of current legislation that landlords should be aware of and new/upcoming legislation.

• Smoke alarms
• CO2 alarms
• Deposits
• EPC
• Redress schemes
• CMP – Client Money Protection
• GDPR -
• Right to rent
• Gas safety
• Electrical safety
• Soft furnishings

• Tenant fees ban and how this could impact on Landlords and tenants
• End of Section 21 notices in Scotland

 
Any questions please feel free to email me at daniel.bourke@belvoirlettings.com