The new Houses of Multiple Occupation (HMO) rules came into effect this week, which means any landlords whose HMO properties are not up to scratch in terms of the minimum room sizes and amenities could face serious penalties.
The new rules came into play on October 1 and there is no grace period, and the consequences for non-compliance can be severe: up to a £30,000 fine, a rent repayment order, a banning order and even a criminal record.
For those who simply need to get a licence because, under the new rules, their property is now defined as an HMO, the process is fairly simple.
But for those landlords who need to make structural alterations or improvements to safety standards to comply with the new minimum room sizes in HMOs, compliance is not so straightforward.
There are only a handful of lenders that lend on HMOs and the ones that do will be more used dealing with experienced professional landlords so will expect the property to have the correct licensing and already meet the new minimum bedroom size guidelines before they will consider lending. This is obviously no good for landlords who need an injection of cash in order to fund changes to their properties to ensure they comply with the new rules.
This is where bridging loans can offer a solution.
We have already seen many people entering the HMO market, looking to purchase a large detached property in order to convert it into single living accommodation units with shared facilities and communal areas.
In these situations, a bridging loan is able to bridge the value of the funds needed to improve the property and make it suitable for owner occupation. We typically lend on a term of 6 months, obviously ensuring the client has an exit strategy in place – in this case, it will generally be a buy to let or commercial mortgage.
In most cases, the value if the property will not generally be enhanced, but the rental value will go up as the property becomes a fully licenced HMO with potential for multiple rental incomes.
And while we expect to see this trend continue, there could now be a spike in HMO lending as landlords scramble to ensure their properties, already defined and licenced as HMOs – meet the new regulations.