HMO Additional Licence – Potential Housing Crisis?

Many thanks for the comments and feedback.

I think you're spot on Gary that we're about to see a car crash when it comes to HMO properties and an uprising from tenants unless something is done. Mortgages are clearly one problem in terms of the economics of it all as you suggest and freeholders denying multiple occupancy (perhaps of any kind) on the basis that a family or household is a blood relations or a single person the other.

My main learnings to date are:

- People understand Mandatory Licensing (5 people, 3 storeys kind of deal), very few understand Additional Licensing
- As Leaseholders apply for their Additional License (where there are 3 people unrelated people in the property) they'll be denied - perhaps by the mortgage company, perhaps by the freeholder

Southwark Council suggest 10,000 properties will require the Additional License – 60-70% of that will be leasehold say. That could be a problem for tenants if covenants are restrictive - and I suspect this will be the majority case.

So what might a solution be that respects the intent of the freeholder and government?

Surely there should be a differentiation between a household that is under one tenancy agreement, (people came together as a group, chose their rooms, choose who they live with share the joint responsibility of the house) living effectively as a household or family unit vs. a group of people that are placed in a room, have a lock on the bedroom door, have separate short term agreements, are refuges or student accommodation etc.

There is quite a difference here and I would certainly feel it reasonable for my freeholder in a private area accepting to reject the latter.

I think that building societies would recognize the difference between an HMO falling under Additional Licences (smaller property) vs. a Mandatory HMO (bigger property) also – so if there is a mortgage issue then this could be dealt with too. Products would be appropriately priced.

So what next?

Yes I will certainly write to my MP as will my poor tenants but I think the best thing I can do is help Southwark Council generate greater awareness of HMO Additional Licencing through the Evening Standard explaining that tenants should check if a property is HMO or whether the landlord has had problems getting one. As the story develops, countless number of people will find themselves facing eviction, Southwark Council won’t cope and then I suspect they and government may start to think more about the problem they are creating for themselves.

In the meantime, I shall now look for a family of 10 perhaps who constitute one household to live in my 3 bed flat as for some bizarre reason, as I understand, this is a perfectly acceptable situation according the laws of the Housing Act and my freeholder. It’s fortunate that I’m a good landlord and not wanting to exploit said family since nothing seems to stop me in that scenario.

What a pickle that can't be brushed under the carpet.

Reply to the comment left by "Y L Newbury " at "25/04/2016 - 15:37":

Yes - the council make the freeholder and mortgage company aware - however, the right way to do it is to contact your freeholder and mortgage company in the first place as I have found out.

Reply to the comment left by "Chris Mee" at "25/04/2016 - 22:58":

Could you please enlighten us with your story Chris, of how it started, developed and the solution?

Reply to the comment left by "Gary Dully" at "25/04/2016 - 23:50":

Sorry Chris, I shouldn't have posted the last post, as I'm using an iPad it won't let me edit it.

But to illustrate my point, about 9 years ago I and another investor were doing joint ventures in rent to rent and my then business partner found an ex children's home that had been converted into a 9 bedroom house.

The vendors had a mortgage with Northern Rock and had borrowed as much as they could and also had a second charge on the property.

Then they had split up and had the property on the market for less than they had in total borrowings.

The lady left with the house couldn't afford the payments and her ex partner wasn't in a position to keep them coming in.

We went through the process with the planning dept of gaining a HMO license on the property and the stumbling block was Northern Rock.

The councils license application form asked for LENDERS NAME AND ROLL NUMBER.

Despite the house being in Negative Equity, the vendors having no money and the prospect of it having a loss of over £69,000 even if we got full market value for it, Northern Rock wouldn't grant us permission to Let. That killed the deal stone dead as we couldn't insure the building as a HMO without the lenders permission.

That house went to auction and was sold just above the reserve price and made a loss upon sale of about £130,000 to Northern Rock, plus mortgage arrears and loss of 12 years mortgage payments.

Now I'm no brain surgeon, but just for the granting of permission to let, that institution lost £130,000, the vendors lost their home, they lost their ability to mortgage for the next 6 years and I lost about 2 stone in weight.

9 households could have been set up in an executive Tudor style house and much money would have been made by all parties involved.

My point being that sometimes being up,front and honest is very expensive.

I seem to recall, I think, Duncan Bannatyne,saying that he bent the rules with his banks with revolving credit cards when he wanted his first nursing home or something like that.

It's all quite jolly, now that he's a bulging millionaire and we can all have a chuckle about the cheeky Scottish chappie.

HMO license applications could have that question removed from the form if you want to keep housing people in HMO's or lenders should grant permission to let and offer more HMO products to landlords at comparable terms to BTL.

3 bed house to let to 3 sharers £900
3 bed house to let to 2 sharers £900 (spare room if you have a third friend who wants to be a lodger)
3 bed house let to male/female, male/male or female/female (must be a "couple") £900 (spare room for your mate to lodge)

4 bed house (2 spare rooms for friends/lodgers)

Southwark seem oblivious to the fact that, in some cases, it is not the landlord that tries to pack in the tenants to their property, but the tenants themselves. Countless times, in the past, we have found more than the persons on the tenancy agreement living at our property. They try to cover it up with the property showing no signs of this on inspections (of which they have noted). Only by visiting the flat when passing, we would uncover the truth. If we need to rent to only 2 persons in the future, all Southwark landlords will find that many tenants will have more than 2 persons living there and the landlord will get the blame and fines. It is all well and good passing on the fine to a tenant (even if that were possible) but most would not have the funds to afford it. I do feel something will have to change, but it is only by going through the process will we know what that is and when. Newham are a neighbouring borough and I have heard very little of what happened there, but do know some of my tenants came from that area as they were priced out of it, perhaps that is what Southwark Council are trying to achieve: a social cleansing of private tenants now that many of their council tenants have been displaced by new tower blocks built on previously Council owned sites.

Reply to the comment left by "Y L Newbury " at "26/04/2016 - 10:29":

Well your right Y L Newbury - it's as difficult to police for the landlord as it is the council - and it's the landlord that is seen to be the one at fault if tenants re let rooms. I have no doubt this will be difficult to control unless I actually end up putting a lock on one for the doors.

The following illustrates how, unless I can somehow protect my tenants, Southwark's selective licensing scheme has the potential to disrupt the lives of three perfectly innocent, hard-working, renters.

I am a landlord with three properties within the scheme area. Two are 5 bed mandatory HMOs and have been for years. When required to, I made the houses fully compliant. It was a considerable cost but I appreciate that higher fire standards, etc. are appropriate, so that was no great problem.

The third is a two bed flat with a couple who are the tenants on an AST and their lodger, which now requires licensing because the council decided to draw the scheme boundary so that it includes a few of the properties at one end of the road. (There is no logical justification for it, but that's another issue.)

Now, do they constitute one household or not? I think possibly not, but I've gone round and round the definitions and still can't make up my mind. If they are not, has the flat, by virtue of now being caught within the scheme become an HMO? As regards the mortgage, nothing has changed in the living arrangements or the 'risk' so why should I have to change it or the insurance? Fortunately, regarding freeholder and lease issues, I'm a director of the freehold company, so I won't be making life difficult for myself.

I'm not actually seeking answers to the above questions from anyone in the forum... I just want to illustrate how this scheme can change the status of tenants in an arbitrary and detrimental way.

So, the simplest way to resolve the HMO question may be for me to tell the tenants that they can no longer have a lodger. If that means that they are more likely to run into problems paying the rent, then there are obvious consequences, as set out in the previous comments on this topic.

Partly related to this, and while I have your attention, I'd also like to flag up that Southwark's web-based 'guidance' re the application process is a pig's ear of circular self-references. Not only that, one has to refer to some of the HMO legislation and to the London Fire Brigade's standards. In the latter they refer to 'Flats in Multiple Occupation', which, of course, do not exist in the legislation, as they are HMOs, the definition of which can include flats!

In sum, the way it is all set up is bonkers.

In my opinion you have two households, the couple (1) plus the lodger (1) so no HMO. As a result of the Additional licensing in this area we have today had to say goodbye to our 3 tenants of over 8 years who were very upset to leave and we are sorry to see them go. As usual other landlords close by are continuing to do as they please as they are not on any radar, do not protect tenant's deposits etc. We will sit tight and see what happens to rentals in this area....

It is worth writing to local counsellors, MP, Evening Standard etc because often the people who introduce laws simply do not understand how the rental market works, so do not understand the negative consequences of the new rules.