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HMO's - Understanding The Legislation and its Impact on Lenders and Valuations

By Lisa Orme (Mortgage Advisor and Buy to Let Specialist)

HMOs have garnered huge popularity of late, added to which there are lots of people going around quoting 'get all your money out' and 'HMOs are valued at 10 x rent', neither of which usually applies and while lenders are keen to lend on them, it has forced them to tighten policy, especially on valuations.

LEGISLATION
There are three types of HMO licensing:-
Mandatory - this applies nationally and is for five or more tenants over three or more stories forming two or more households.

Selective - this is where a council specifies licensing is required for all rented properties within a certain area, this includes HMOs but is not limited to them.

Additional - this is where a council designates licensing is required for smaller HMOs.

We also then have what's called Article 4; this is a new planning classification C4 for HMOs for up to six people. Effectively this means that HMOs with up to six tenants were given permitted development rights waiving any need for planning permission.

However local authorities were allowed to designate a planning requirement for these HMOs if they wished; these are known as the dreaded 'Article 4 areas' - a misnomer in fact as Article 4 is a benefit…but it's stuck!

This is also where the term Sui Generis comes in to play whereby properties with more than six tenants likely requires planning permission; this has always been the case and has not changed. Existing use requires ten years of use not four as is commonly touted.
With respect to building regulations there are also Section 257 flats, which apply to a converted block of flats.

Section 257 of the Housing Act 2004 relates to a building (or part of a building) which has been converted into, and consists of, self-contained flats (converted block of flats).

Buildings of this description are also classed as HMOs if:
- the conversion work was not done in accordance with 'appropriate building standards' and still does not comply with them, and;

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