The RLA was responding to Birmingham City Council’s decision to ask landlords to seek planning permission when converting a family home into a small size HMO.
The Council’s cabinet voted in December 2019 to introduce an Article 4 Direction on small HMOs following similar moves by other local authorities including Manchester and Lewisham. Northamptonshire is consulting on the same.
The RLA stated such rules would put off investors looking to do HMO conversions.
“HMOs offer affordable housing. It may be good for landlords with an existing HMO in the area, giving them a premium when they look to sell, but it will deter investment,” said John Stewart, policy manager at RLA.
“The local authorities’ policies are generally written to discourage permissions. Landlords must either speculate hoping to win permission later down the line or not invest.
“Plus, you’re potentially putting up a red flag for people who are looking to buy in the area. An Article 4 Direction is a usually a sign the council has missed the boat and there are lots of HMOs in a place already,” Stuart added.
Advisers in demand
But brokers viewed the rising number of local HMO planning policies as one factor in a property market of many moving parts in the UK.
They believe lenders have innovated to offer diverse buy-to-let and bridging solutions that support landlords who want to develop and let HMOs.
“Lenders’ criteria vary greatly on HMOs. Some will lend only on a licensed HMO and others only if it’s a multi-unit that doesn’t need a licence,” said Liz Syms, chief executive, Connect for Intermediaries.
“There’s a class of property that must be licensed and there are grey areas where local authorities have leeway to make decisions, whether on a particular street or scenario.
“We ask clients to contact their authority to check and then we can match the client to the right lender.
“As an example, Birmingham Midshires will allow up to five letting rooms in a licensed HMO, whereas other high street lenders will do four or five letting rooms but no licence. The quirky thing with Birmingham Midshires is all the tenants must sign a single Assured Short-hold Tenancy Agreement (AST) as opposed to having five ASTs, one for each tenant,” Syms said.
Bridging opportunity
The majority of landlords now accepted that securing licences and permissions was a normal part of establishing a HMO, according to Darren Meehan, director at Bright Money Independent Mortgage Brokers.
“We’re doing five purchases at the moment and the buyer may go in for planning at a later date. Most people expect to have to get planning permission now — it’s not a big shock,” Meehan said.
“The biggest hurdle is when you buy a property that you want to convert into a HMO, for example a five-bedroom house. You can’t buy it using a standard buy-to-let mortgage and change it to an HMO product after the work has been done. The lenders don’t allow that. When the landlord applies to the council for an HMO license the council alerts the lender and they can just pull their money. It’s really, really dangerous.”
Meehan said clients can take a bridging loan and then remortgage to the HMO product six months later.” We get two deals out of doing the bridge. We’d prefer to just do one — but the client really does need to do it the correct way,” Meehan said.
Syms agreed that the particular circumstances of a purchase may result in a bridging deal being the right fit.
“If it’s a case that in order to get the planning permission work is required to the property, such as replacing fire doors, the surveyor will point that out. Then a bridging lender can go in the short-term while the property is properly brought up to HMO standard,” she said.
