With the start of the new university term just around the corner, many students will be well down the line in looking for and securing accommodation for the coming academic year. With the continued rise in students wanting to enter higher education there has, for some time, been a lack of quality accommodation.
The ever increasing cost of campus accommodation often forces students after the first year to group together to look at the private sector. It has also become far more common for parents of students to look at purchasing property at the start of university rather than looking to put their loved one into low quality rented accommodation.
A recipe for growth
Over the last five years, houses within university towns have seen some of the greatest increases in house prices. A lack of supply combined with the increasing number of students requiring accommodation is a very healthy recipe for sustainable growth in this sector.
With the continued pressure on yield in the residential sector, it’s no wonder many investors have looked to purchase a house which could form multiple occupancy for the tenants. It is not uncommon to get yield of over 10 per cent on such property.
Of course, it is not just university towns that attract such properties, areas with large populations of migrant workers are also ideal locations for multiple occupancy property.
However, if clients are considering this type of venture, it is essential that they understand the legislation and regulation that effects this type of letting.
Looking at HMOs
As of the 6 April 2006, houses in multiple occupancy (HMO) licences became mandatory for certain types of property. But which types of property needs to have a licence and how does the landlord apply?
Properties that are deemed to be HMOs fall into four particular groupings:
- A converted house that contains one or more flats which are not fully self-contained and which is occupied by three or more tenants who form two or more households.
- A house or flat which is let to three or more tenants forming at least two households who share an amenity, for example a toilet, bathroom or kitchen.
- A house that has been converted into bedsits or other non self-contained accommodation which is let to three or more tenants forming two or more households with shared amenities.
- A building that is converted entirely into self-contained flats, if the conversion did not meet the standards of the 1991 building regulations and more than a third of the flats are let on short-term tenancies.
The following list, while not exhaustive shows potential exemptions:
- Occupied by only two people.
- Occupied by the owner and up to two lodgers.
- Occupied by persons who have their main residence elsewhere.
- Owned or managed by an educational body.
- Occupied by a religious community.
- A building that comprises solely of self-contained flats in compliance with 1991 building regulations.
- Properties that are three or more storeys, occupied by five or more people, who form two or more households and share amenities.
A household is defined as couples married to each other or living together as husband and wife, relatives living together and same sex couples, if the relationship is deemed to be that of ‘living together’. If friends are sharing, then each friend would be deemed as one household.
Where does the landlord obtain a licence?
HMO licences are obtained from the Local Housing Authority by completing an application form and paying the relevant fee. However, an HMO is not automatically granted to a landlord – they must prove that they are fit and proper and that the managing arrangements are deemed suitable. Likewise, the property must be deemed fit for purpose and meet as a minimum the following requirements:
- It meets current fire regulations standards.
- It is deemed suitable for the number of tenants living there.
- It has at least one basic amenity of kitchen, bathroom and toilet for each five tenants.
An HMO licence is non-transferable to different landlords or properties. However, each local authority keeps a register of all HMOs granted by them. Local authorities are keen for all HMOs to be registered and to that end, in some circumstances may offer funding to help with any changes to the property to comply with the regulations.
Failure to register
If a landlord operates an HMO without a licence where one is deemed necessary, they could be fined up to £20,000 as it is deemed a criminal offence. A breach of licensing conditions could result in a fine of up to £5,000.
The information above is an overview of HMO regulations and independent advice must be taken by clients on this matter. Further information can be obtained from the www.odpm.gov.uk or from local housing authorities.
So while the lure of increased yields are attractive to investors, it is essential that clients fully understand the legal requirements so they do not fall outside the law when considering this type of property investment.
The rise of the uni town
In addition to the potential increased yields that a landlord can obtain by investing in a university town, there is also the consideration of accelerated capital growth in these areas. Recent research undertaken and published by Halifax Estate Agents has revealed that 20 UK university towns showed an increase of more than 20 per cent in house prices over the last year. That’s nearly double the nationwide increase of 11 per cent. If you take into account all of the university towns in the UK, they averaged a rise of 14 per cent, still outperforming the UK average by a comfortable margin.
Interestingly, four out of the 10 best performing university towns and cities are in Scotland, those being Aberdeen, Dundee, Paisley and Glasgow.
The top 10 performing university towns and cities by house growth over the last year can be seen on the table below.
The performance of university towns and cities, along with the overall well publicised success of the buy-to-let sector is why more and more people are taking steps to invest in a property in these areas. Universities, like any other establishment, will go through high and low periods. For example, is the popularity of the university beginning to decline? Like any other investment, it is vitally important that you do your research, speak to local letting agents about popular student areas and potential rental incomes, even look into university league tables, after all parents always want their children to go to the best university.
Whether for their own university bound children or purely investment, the attractions are clear, but the regulation surrounding the conversion of a property to an HMO should not be taken lightly.
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