Wednesday, March 15, 2006

Look Out - New Tenancy Laws April 1st

New Tenancy Laws
By Lorna Bourke

LONDON (Citywire) - Buy-to-let investors have less than a month to go before licensing of homes in multiple occupation (HMOs) becomes effective on April 6.

Licensing will affect a large number of landlords who let homes to flat sharers, the largest single group of tenants and vital to the buy-to-let market.

Under the Housing Act 2004, the government has introduced a new definition of HMOs. Under the new scheme an HMO will be any property shared by more than three unrelated tenants and which is not owned or managed by a public body, typically young flat sharers.

Not all HMOs require a licence. Mandatory licensing will come into effect for all HMOs with three or more storeys and if there are five or more tenants in two or more households.

HMOs that are not subject to mandatory licensing could nevertheless be liable to additional licensing or selective licensing, which local authorities could introduce in areas of low housing demand or with significant anti-social behaviour problems.
To qualify for a licence HMOs will also have to comply with prescribed amenity standards and will also be subject to inspection under the new Housing Health and Safety Rating System.

The aim of the law is supposed to be to prevent cowboy landlords from letting substandard property, but there is a real fear that some local authorities will simply use it as a revenue-raising exercise and slap high fees on landlords. Jan Bartlett, of the National Association of Estate Agents, said: 'Oxford city council has just set its fees for licensing at 800 pounds and the licence will last for five years. Nationwide, fees may vary from 400 to 1,000 pounds."

The Council of Mortgage Lenders has expressed very real concerns over HMOs, pointing out that if local authorities demand unattractive health and safety amenities such as wheelchair ramps, fire escapes and fire doors, this could reduce the value of the property if the landlord wants to sell it to an owner-occupier. The CML has also warned that some lenders may refuse to offer loans on properties which could be designated as HMOs.

"The Office of the Deputy Prime Minster should also be aware that enquiries by the CML amongst its members offering buy-to-let loans suggests that some will cease to offer such loans or will offer them under more restricted circumstances due to the additional threats to borrowers income streams from non-compliance with licensing requirements," warns the CML.

"Any increase in these (legislative) burdens will inevitably cause some landlords to cease renting HMOs or even to leave the private rented sector entirely. There remains a real risk that many landlords will choose to withdraw from letting of HMOs and that this will increase the pressure on accommodation for students, single people and others. This is not in the public interest."
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It will be interesting to see how this plays out. I have always limited my investments to houses with a maximum of four letting rooms because this has always been talked about as the cut-off point i.e. those with five or more letting rooms were likelt to be subject to further legislation at some stage.

Chris Bell

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