Alan Cleary - Managing Director of Precise Mortgages
As if landlords haven't enough to think about with the usual day-to-day of running their portfolios, tax-planning and managing their financials, this month brings yet more change for landlords with the extension of licensing rules on HMOs, which came in on Monday 1st October.
According to recent research*, the changes are set bring more than 160,000 properties into the HMO licensing regime.
For clarity, the new scope of the rules mean that any property let to five or more tenants from two or more households will, regardless of the number of floors, now have to have a valid HMO licence. This is a big shift from the previous licensing rules which applied only to properties with five or more tenants from two or more different households where the property was three or more storeys.
If landlords fail to get their licence, local authorities will be able to fine them up to £30,000 and, in extreme circumstances, bring criminal charges against them. It sounds extreme, but the government justifies the licensing extension because of ongoing poor conditions in the private rental sector.
While I have no doubt there are plenty of examples of landlords stuffing properties full of tenants in dreadful conditions, it's far from the norm. I've seen relatively little from lenders on the subject of how they plan to deal with the licensing changes.
I can't answer for other lenders, but for Precise Mortgages all mortgage applications where the security is captured under the new licensing rules will require a valid licence to gain approval. It's the law.
Landlords are businessman, and it's their responsibility to ensure that they operate in ways which are compliant with the law. At Precise Mortgages, we are careful about who we lend to and that the security is what the application claims.
This becomes even more important when lending to professional landlords with multiple properties. The more complex the financial position of the borrower and the nature of the security, the more careful our underwriters are.
Our doors are open for landlords with HMOs - we think, generally, that this type of landlord tends to be experienced and commercially driven. That continues to be our view, licensing change or not.
Affected landlords who will need to remortgage onto a specialist HMO product after the changes are expected to comply with the law by government. We will also expect them to comply with the law.
But that doesn't mean we won't be lending to them. The same very basic rules apply. If the maths adds up, then we're on board.