Over a year since the Government introduced licensing requirements (July 2006) for Houses of Multiple Occupation (HMO), a survey by property finance experts Heritable Bank highlights:

● Huge inconsistencies in local authority licensing requirements
● Landlords are being deterred from investing in this sector due to licensing arrangements
● Almost 1 in 4 (23%) of landlords still don’t know of the HMO licensing scheme

This situation has led the Bank to call for an overhaul of the entire HMO licensing scheme. Heritable Bank surveyed 60 local authorities across the UK, and discovered that licence fees range dramatically from £80 per year in Hillingdon in London, to a whopping £1,100 per year in Newcastle. The average basic licence fee for a standard three storey, five unit HMO property is £563. This means UK landlords will shell out £56 million in licence fees this year, the equivalent of £2500 per landlord, based on the Department for Communities and Local Government’s initial estimate of the average number of properties and landlords affected.

In addition to the added expense faced by a landlord report reveals the complexity of the HMO licence scheme. Since last year, 38% of councils have changed the way they administer HMO licences. Most of these changes have involved further development restrictions and caveats, but 17% have involved increased licence costs, compared to 12% where fees have come down. The survey has also uncovered that there are 11 different approaches to structuring fees. Some councils charge for additional services such as the requirement for a ‘fit and proper person’ to approve a licence or assistance in making an application. Heritable Bank, one of a limited number of lenders that will offer mortgages on HMOs, therefore urges the Government to provide local authorities and landlords with clearer guidelines.

The cost and complexity of the HMO licensing scheme is creating an impact on landlords. The bank’s recent survey asked over 200 UK property investors how this situation is taking its toll on landlords’ appetite to buy or hold on to HMO properties. Asked specifically whether the introduction of HMO licences has had any effect on the type of properties they invest in, 43% of respondents who would normally consider investing in an HMO property said they had actively avoided doing do, while a further 6% said they had sold stock. Only 4% of respondents have been spurred on to buy an HMO property as a result of the scheme and, perhaps most worrying all, nearly one in four (23%) still do not know anything about the scheme.

Mark Sismey-Durrant, Chief Executive comments: “This scheme had laudable intentions of raising the quality at the lower value end of the private rented housing sector, but was introduced with no central guidelines on cost or structure and the results were entirely predictable; it has become a revenue earner for the local authorities, instead of a method of improving standards in the private rented sector. The Government must urgently review the framework for licensing HMOs, so that all parties know what is required of them and what the likely cost to them will be. This will enable professional landlords to budget both the time and money needed for the successful development of the HMO lettings market.”

As the basic licence fee varies between surveyed councils, Heritable Bank warned landlords to check the small print, as 26 out of 60 councils would levy additional fees and costs for properties with extra occupied rooms or survey requirements. The lender is calling on Government to create clear licence fee guidelines for councils and landlords, and to reconsider introducing a cap on licence fees.

Other observations from the report include:

● Councils’ licence fees vary between 1, 3 and 5 year deals
● The cost of the licence fee is not determined geographically
● Wandsworth proved to be the most complex licence depending on number of levels and occupied rooms.

www.heritable.co.uk