Landlords have to dig deeper for a licence

Property professionals are lashing out against government legislation that is set to impose costly demands on larger private rented properties. Landlords of properties that house five or more tenants and are at least three storeys high will from April 6 have to apply for a mandatory licence from their local authority and meet a raft of new criteria. Some have estimated the costs of complying with the regulations at up to £20,000 per property.

The new demands range from upgrading fire and safety regulations to installing a wash basin in every bedroom. The licence fee will be set by individual councils and there is no guidance or cap as to how much this should be.

The rules are aimed at raising the bar on the standard of accommodation available for groups of students, young professionals and others who rely on the private rented sector.

But industry representatives have attacked the rules for tying landlords up in red tape. “The government is bringing in a raft of legislation that will hit the private rental sector very hard,” says Rob Thomas, senior policy adviser at the Council of Mortgage Lenders. He describes the requirement for each bedroom to be fitted with its own wash basin as “daft”. “It is an attack on the small landlord. The cost of renovating properties and applying for the licence will be a minimum of many thousands but estimates of as much as £20,000 are being bandied around,” he says.

The burden of this high cost is compounded by the fact that the maintenance work could reduce the value of the properties. Thomas says: “There is no demand for wash basins in bedrooms so property buyers would see this as negative. It seems absurd.”

According to Paragon Mortgages, which specialises in the buy-to-let market, around 10 per cent of the 2.6m private rented UK households are defined as HMOs – houses of multiple occupancy. This means they have three floors or more and at least five unrelated people living in them.

The National Landlords Association estimates that the rules could affect around 100,000 landlords in the UK. It fears the legislation will trigger an exodus of buy-to-let investors from the HMO market, which has traditionally been attractive as it offers high rental yields.

Simon Gordon, head of public affairs at the NLA, says: “Our concern is that landlords will pull out of the sector or reduce the number of people they let their properties to.” This could push up rents for private tenants as there may be less competition between landlords and tenants may have to pay extra to cover unoccupied bedrooms.

John Heron, director of mortgages at Paragon, agrees that the new regime could drive out the smaller investor. “The new rules add another layer of complexity. It is likely that the HMO market will increasingly become the preserve of the professional landlord,” he says.

He is also concerned that the rules could force some mortgage lenders to cease considering and lending on HMOs. “A number of smaller lenders where buy-to-let is not their core business could shy away from providing funding on these properties,” he says.

From April 6, when the rules will kick in, any landlord with a property that is defined as an HMO will be subject to mandatory licensing by their local authority. They will have three months to seek a licence from their local council, which could cost up to £1,000. Failure to do so could result in a fine or legal action by the council against the landlord.

To qualify for a licence, HMOs will be visited by a council inspector to check they comply with the new standards.

The new licensing agreement also stipulates that HMOs that are not subject to mandatory licensing could still be liable to additional licensing – or selective licensing. This means that extra powers will be handed to local authorities to introduce additional licensing in areas of low housing demand or with significant anti-social behaviour.

“What is very alarming is that many landlords, especially those who may be new to the sector, are unprepared or even unaware that a plethora of new regulations is about to descend on them,” says the NLA.