Introduced back in July 2006, huge inconsistencies have now been found in local authority licensing requirements. In addition, almost a quarter of landlords still have no idea what the scheme entails - leading the bank to call for an overhaul.
The lender - one of a limited number offering mortgages on HMOs - surveyed 60 local authorities across the UK, and discovered that licence fees range dramatically from £80 per year in Hillingdon in London, to a whopping £1,100 per year in Newcastle. The average basic licence fee for a standard three storey, five unit HMO property is £563.
This means UK landlords will shell out £56 million in licence fees this year, the equivalent of £2,500 per landlord, based on the Department for Communities and Local Government’s initial estimate of the average number of properties and landlords affected.
In addition to the added expense faced by a landlord, Heritable Bank’s report reveals the complexity of the HMO licence scheme. Since last year, 38 per cent of councils have changed the way they administer HMO licences. Most of these changes have involved further development restrictions and caveats, but 17 per cent have involved increased licence costs, compared to 12 per cent where fees have come down.
The survey has also uncovered that there are 11 different approaches to structuring fees. Some councils charge for additional services such as the requirement for a ‘fit and proper person’ to approve a licence or assistance in making an application.
Asked specifically whether the introduction of HMO licences has had any effect on the type of properties they invest in, 43 per cent of landlords who would normally consider investing in an HMO property said they had actively avoided doing do, while a further 6 per cent said they had sold stock.
Mark Sismey-Durrant, chief executive of Heritable Bank commented: “This scheme had laudable intentions of raising the quality at the lower value end of the private rented housing sector, but was introduced with no central guidelines on cost or structure and the results were entirely predictable; it has become a revenue earner for the local authorities, instead of a method of improving standards in the private rented sector.
"The Government must urgently review the framework for licensing HMOs, so that all parties know what is required of them and what the likely cost to them will be. This will enable professional landlords to budget both the time and money needed for the successful development of the HMO lettings market."
