Speaking to Mortgage Solutions, Dal Sidhu, managing director of a company which advises landlords on HMO properties, said councils which have introduced the Article 4 directive were trying to discourage the establishment of HMOs meaning the owners of existing properties could face trouble when refinancing or selling.
He said when landlords attempted to remortgage or sell, a surveyor could apply a “new set of protocol questions” to determine whether a property was a lawful HMO with the appropriate planning consent.
Sidhu added: “This prevents them from selling or borrowing because if the surveyor or the lender is not able to satisfy their criteria for lawfulness of that HMO then the [mortgage] deal can and does fall through.”
“Where the landlord fails to provide proof that it’s a lawful HMO, properties are then being valued at zero,” he said.
Sidhu added the existing HMO license would not cover the directive as it does not include planning permissions.
For cities where the order is not in place, a Permitted Development Right is needed to transfer properties from a C3 class – standard family/single occupancy dwelling – to a C4 class – small HMO of three to six occupants. In these circumstances, planning permission is only legally required for properties which have seven or more occupants.
However, Sidhu advised that landlords obtain a Certificate of Lawful development (CLD) to prove a HMO is regularised and lawful and has not preached previous planning conditions under Permitted Developments.
Once this is granted by the local planning authority, the CLD means no enforcement action can be carried out to the development referred to in the certificate.
Ertash Ali, head of London and home counties at mortgage adviser firm Vincent Burch, said he had already seen some landlords face trouble due to the directive.
“I’ve had people who have had to get bridging finance or find other means to increase room size to adhere to standards,” he said.
He added: “Some have had to convert back to a standard residential property as it’s no longer an option to be an HMO.”