Catch 22 with Additional HMO Lisencing in North London

by Readers Question

9:11 AM, 8th June 2014
About 5 years ago

Catch 22 with Additional HMO Lisencing in North London

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Catch 22 with Additional HMO Lisencing in North London

Additional HMO Lisencing in North LondonI have a portfolio of 15 houses in North London. The local council has just introduced additional HMO licensing whereby small HMOs like mine (i.e 3 or 4 sharers in a 2 storey house) will need to be licensed.

I purchased my properties all using normal BTL mortgages and the problem I have is that if I continue to rent the houses as I am doing to small sharers, I will be in breach of the HMO law and could face a large fine of to £25K. However if I do the work to make it a HMO and apply for a HMO license, this will inform my existing mortgage lender and I will be in a breach of mortgage, due to the council writing to my lender advising them that a license has been applied for. So I am stuck as what to do with my portfolio now…

I understand that most HMO lenders lend only on properties whereby there is a licence in place, but you cannot get a licence until the work is done and applied for through the council, so there seems to always be a point where you are in breach with someone. Catch 22.

I therefore see no option but to continue to rent my properties as is which are now illegal or sell up and buy flats.

Is anyone else in this situation?

Any advice would be very much appreciated as to how to proceed from here..?

Thanks

Alex



Comments

Mark Alexander

9:12 AM, 8th June 2014
About 5 years ago

I see your problem Alex and sorry but nothing obvious springs to mind other than more bad news, i.e. if you sell the properties you will also have CGT to consider.
.

Londoner 43

10:06 AM, 8th June 2014
About 5 years ago

What about renting to families? Less profitable, but you would be able to keep your current mortgage arrangements. I don't know what kind of changeover period the council would allow, so that you can honour the current AST agreements.

Romain Garcin

11:21 AM, 8th June 2014
About 5 years ago

Are you saying that you are already breaching the terms of all your mortgages?

Phil Ashford

13:31 PM, 8th June 2014
About 5 years ago

It always was a HMO, it always could have needed to comply with mortgage conditions and always could have needed the suggested works now required by licensing, but previously potentially required from the Management of HMOs regulations 2006.

Therefore, the requirement of licensing may not be causing a catch 22 at all, the original setup may be.... Facts are lacking to draw appropriate conclusions.

Kevin Biggins

18:42 PM, 8th June 2014
About 5 years ago

I have been through this process. My advice is to apply for the licenses as it is a legal requirement. Once you have applied you are complying with the law.
My experience of the process has been that the council takes a while to process the application. They then inspect the property and advise you of what work they require and give you a timeframe for the work to be completed. Then do as they have asked. I made the mistake of doing all the work as they had specified for all of my houses and then the council changed its standards so I had wasted time, money and effort with the best intentions.
Talk to the council, email them so you have proof you have started the application process and are getting the documentation required in order.
I assume your properties are on buy to let mortgages as that could be an issue that should be addressed.

Is there a problem with HMO housing in your area? I am wondering if this is a cynical ploy to extract funds from landlords as a means to fund the local authority.

Dee Mc

21:06 PM, 8th June 2014
About 5 years ago

Reply to the comment left by "Mark Alexander" at "08/06/2014 - 09:12":

It looks like we will all have to sell up and get proper jobs LOL. HMOs are coming everywhere and if they haven't got you yet it's only a matter of time. Councils are all getting wise to this cash cow. The reason for licensing is that is where they make their money. If you're just a registered HMO I believe this is free it is only when you proceed to licensing that you have to pay and they can hold their hand out every 5 years. It makes me sick when they wrap this up under the disguise of "making properties better for tenants". Good landlords don't need policing and the bad landlords just ignore all the rules anyway. Anyway rant over.

If I was in this position, I would contact my mortgage provider as they might do HMO mortgages. If I got no joy from them I would speak to a mortgage broker with a view to changing mortgage providers. Also, I would check with the council to see if they advise your mortgage provider or if they say you should advise your mortgage provider. If it's the latter I would proceed to licensing. Then, if as you say mortgage providers want the property to be licensed they will be. Further, I would check my mortgage paperwork. Again my knowledge might be out of date but for example The Mortgage Work define HMO anything else in their eyes is not a HMO eg a property with 4 tenants on one tenancy agreement would not be a HMO with TMW.
.

Mark Alexander

21:26 PM, 8th June 2014
About 5 years ago

Reply to the comment left by "Anonymous " at "08/06/2014 - 21:06":

Useful article re HMO finance here >>> http://www.property118.com/hmo-finance-85-ltv/66063/
.

8:20 AM, 9th June 2014
About 5 years ago

Worth noting that, in a recent case, the landlord of an unlicenced HMO was ordered to repay the rent to tenants!

Charlie Vaughan-Lee

12:17 PM, 13th June 2014
About 5 years ago

Hi Alex, that is a tricky situation. We have a fund that buys HMO properties so if you would like to sell then please let me know as we might be interested in the whole portfolio. My email is **MODERATED** - please see Advertising rules >>> http://www.property118.com/advertising/65073/

Mark Alexander

12:25 PM, 13th June 2014
About 5 years ago

Hi Charlie

Sorry but I had to moderate your first post. Please see above/
.

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