HMO Investment Dilemma – READERS QUESTION

by Readers Question

15:29 PM, 12th February 2013
About 6 years ago

HMO Investment Dilemma – READERS QUESTION

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HMO Investment Dilemma – READERS QUESTION

HMO Investment Dilemma - READERS QUESTION

Leamington Spa based landlord Steve Gibson has asked us to post the following HMO Investment Dilemma.

“I live in Leamington Spa which is a popular location to rent for students of University of Warwick. As a pension investment my wife and I have recently started looking at purchasing a house to let to students. On investigating further it appears Warwick District Council has removed change of use from Dwelling House (C3) to House of Multiple Occupation (C4) from permitted development as of April 2012. As a consequence planning permission is now required.

I have approached the department responsible for developing the policy to be applied to such applications and at present one doesn’t exist. However planning permission is required and can be refused on grounds such as (but not limited to) insufficient parking, insufficient storage space for refuse, high existing population of HMOs in the near vicinity and the reaction of neighbours to the proposed change.

From a property investor’s perspective this now makes the decision to invest a much more difficult one as it is not possible to get a definitive determination prior to purchasing a property. As student lets provide a higher rate of return and given the price of property in the area is relatively high, the ability to pursue this option is a significant deciding factor in pursuing property investment.

My question is have you experienced this approach by councils in other areas of the country? It potentially limits investment in a housing sector for which there is significant and increasing demand.

One more thing I will add is that having approached around seven estate agents and telling them what we were looking to do only one of them offered to share this fact with us! Hence I suspect there may be a few investors in my area with similar intentions who may get a shock after a purchase has been made! Worse still they may plough on in blissful ignorance and end up in a very awkward position with the council after they have a signed tenancy agreement in their hands.

Any feedback you can offer on the legitimacy of the local council’s approach would be appreciated.

Regards

Steve Gibson”



Comments

16:42 PM, 12th February 2013
About 6 years ago

There has been much comment on the HMO group on Facebook about this - Nottingham in particular are very much anti-HMO for students, as they seem to want to drive them into the city centre. Therefore for certain postcodes you CANNOT expect to purchase a family home and turn it into a student let.

John Bolland

18:11 PM, 12th February 2013
About 6 years ago

I have no student lets but gather they can be profitable although I believe they were a major reason for the tedious deposit protection nonsense we now suffer. In Sheffield they have taken over whole inner city pleasant areas and existing occupiers with children find their antics and behavior can be appalling. Drunkeness, rowdiness & loud music at all hours, beers cans, condoms, hyperdermic needles, lewd sexual behavior in the street and gutter etc etc. No wonder such action has been needed. No wonder given the debts they run up on booz, sex and rock and roll mean they have no money for a first time buyers deosit. If you do not believe this just drive around city centre student areas........Shocking. Of course there are exceptions. I remember looking around a 5 bedder student house once, the girls rooms were a disgrace but one youg lad at the top had an immaculate room. Obviosly well ytrained before he left home...! They do of course spend into the local economy so bars, cafes, restaurants, PC shops etc love the trade and cash they generate.

10:07 AM, 13th February 2013
About 6 years ago

We have had an Article 4 affecting HMO's in Milton Keynes since 2010. Truthfully the issue isn't entirely the requirement for planning but the fact that it will be refused on spurious grounds. To date 100% of applications have been refused. Of course you can appeal but the whole time you have the property under-performing (at best) in terms of cashflow. As a result most HMO investors are now avoiding the town and we have a looming housing crisis (and we aren't even a student town!). Milton Keynes Private Landlords Association are working hard to manage the situation but at present things are not looking good. So IMHO it is the attitude of the planning committee that needs to be taken into account if you are thinking of investing in that area. Do they just want to manage/monitor the situation or are they really trying to make the town a no HMO zone? If you aren not sure then you can always pay for pre application advice on a specific property and see what they say....

BTW I have student lets in Liverpool - great cashflow and no trouble. Would happily do more.

Mark Crampton Smith

12:37 PM, 13th February 2013
About 6 years ago

We have article 4 directive in Oxford too. The planning committee have made it clear that they will not accede to requests for change of use to C4 if there are more than 25% HMOs in any 100m of road frontage adjacent to the site of application. You are correct........the selling agents were unaware of this change for many months afterwards, and we have a client who is seeking redress through the ombudsman scheme for failure to disclose; we will have to see how that goes.

There are a number of interesting issues here: firstly there is some anecdotal evidence that the policy is only serving to drive the PRS HMO stock back into the hands of the unscrupulous landlords......... these are the group that are still buying property that has strong HMO potential but are now paying the council tax and letting the property inclusive of utilities and council tax which keeps them “below the HMO radar”. Of course no ethical landlord would do this, and it also means that tenants are living in un-licensed property. Secondly, there is a school of thought that the requirement for planning permission to move from C3 to C4 usage cannot be enforced......... the argument for this is based on the fact that for a change of use to be required, there must first be a
material change....... is there a material difference in use of a property occupied by a family with say three teenage children (one of whom might be at university) and a group of five young adults sharing a property? This has yet to be tested in a court, but some-one will surely take a local authority on on this basis. The last interesting issue here is that this policy in Oxford will be unsustainable; the property values in large segments of the city have been artificially inflated by the potential yield that conversion to an HMO would have achieved. When voters in these generally left of centre/green/liberal wards realise that their home is now worth up to 30% less than it was, elected members might be forced to reconsider as Oxford has a very fragile majority.

23:34 PM, 13th February 2013
About 6 years ago

The only good part about Article 4 planning is that a council cannot charge for planning applications that are put in due to Article 4 restrictions (at the moment). So put in the planning applications... you have nothing to lose...

Also, you can put in a planning application prior to a house purchase on behalf of the current owner. So get the C4 approval, then exchange and complete on the house purchase.

In regards to the Milton Keynes issue re 100% rejection - I would get the rejections and then appeal. A council can get into a lot of trouble if they keep on rejecting planning applications that are then overturned at appeal.

Freda Blogs

14:55 PM, 14th February 2013
About 6 years ago

If the owner agrees you can enter into a conditional contract, subject to planning consent, so that if consent is granted you will have satisfied the condition and contracts can be exchanged straight away. If you don't do this and you put in a successful planning application, the owners could sell the property to anyone with the benefit of the planning consent that you have obtained.

Puzzler

10:07 AM, 15th February 2013
About 6 years ago

It's a national policy, not Local Authority, brought in as part of the scheme to regulate HMOs. It's just administered by the Local Authority, so the problem is not local to you. While you might be aggrieved that estate agencies did not tell you, and not very helpful of them, it's not their responsibility to do your due diligence, after all they act for the vendor not for you. Also in all probability they did not know. Their job is to sell houses not investigate changes in planning legislation.
Also whilst it may have been permitted change of use before, that does not mean you could just go ahead and do it, you still would have had to apply for a HMO licence, for example to cover fire regulations and to put a tenancy in place without it would not have been compliant with the legislation. At least I had to do that in 2006 in Cheltenham.

11:39 AM, 15th February 2013
About 6 years ago

@Puzzler - I think you are mixing up mandatory HMO licensing vs planning.

This discussion is about HMO C4 planning rights - which is optional for councils to implement and optional for estate agents to be tell buyers about.

HMO licenses (which is really about house safety and fire regs) are mandatory for 3 storeys + 5 or more occupants. A local council may add selective licensing and force licensing for a wider range of houses - talk to your local council regarding this. I have a load of HMOs, some mandatory licensed and some not.

In regards to fire regs, ALL HMOs need fire safety risk assessments - a HMO may fall under the 2005 Fire Safety Order legislation or the 2006 HMO management legislation - This all depends on how the house is rented to the tenants and the risk profiles.

19:53 PM, 18th February 2013
About 6 years ago

There's a bit of confusion in the trhead.

Extra HMO Licensing is Additional Licensing not Selective. Selective is everything in a defined area - what Sir Robin Wails is doing to drive all the LLs out of Newham.

My suggestions:

a - Find out *exactly* what the policy is. They are all different, and messed up in different ways.
b - Consider a smaller house (or 2) below the threshold.
c - Insist on a conditional contract, or walk away.
d - Talk to some experienced and good specialist agents who have taken (say) 30 houses through the process.
e - Convert it into 2 bedroom flats?
f - Consider just over the border in a neighbouring area.

ML


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