Those who experienced them will remember them fondly. Those student days, living in a dank cesspit with three or four mates, with nothing in the fridge expect beer and mustard and a ‘to let’ sign on the bathroom door, upon which someone had got creative with a permanent marker.
As the new university year kicks off with its usual flourish of drinking, nudity and traffic cone-stealing, those who are completing their studies will probably not be aware they are the guinea pigs for the new houses in multiple occupancy (HMO) legislation, which came into force in April this year. However, it is not just students who are at the coalface. With migrant workers and anyone who rents a house with more than two other people also affected.
A word of warning
This revolution, which has the 2004 Housing Act at its roots, has both friends and foes, with the government claiming it will help improve conditions in the private rented sector (PRS). But the Council of Mortgage Lenders (CML) has warned that over-regulation could be a detriment to the fastest-growing sector of the mortgage market.
Now it seems the CML’s, and others’ warnings have been vindicated with the news from the Royal Institute of Chartered Surveyors (RICS) that 29 per cent of letting agents have reported landlords selling their HMOs to avoid the legislation.
The research also revealed 15 per cent of landlords were making changes to their properties which would see them bypass the system.
Jeremy Leaf, spokesperson for RICS, outlined the impact. “The decrease in houses with multi-occupation will help to cut down on rogue landlords but will cause problems by reducing the number of properties available as landlords decide to withdraw from the sector, so creating an additional burden on the state to house the most vulnerable tenants.
“The student and immigrant population may be hit hard as accommodation becomes less accessible in university towns and urban areas.”
So does the RICS research signal a major shift in the way landlords operate in the buy-to-let market or a minor blip, resulting from some landlords not wanting to carry on with their HMO investment?
A rosier outlook
Andrew Moss, product development manager at Mortgage Express, believed the picture was a lot rosier than RICS painted.
“There is no doubt that some provisions of the licensing requirements – in particular those around housing health and safety – could be costly to implement and will cause some landlords to reconsider their position. However, from a buy-to-let perspective, we do not believe HMO licensing will have a big impact.”
Moss also points to Mortgage Express’ own research, which found landlords had firmly grasped the HMO rules and only 4 per cent were considering their position.
Joseph Zammit, senior consultant at The Money Centre, said while some landlords were looking at their position, most saw their investments with a long-term viewpoint.
“Landlords who take their buy-to-let investments seriously are in the market for the long-term, and have accepted the new regulations and additional charges, and where necessary have been willing to make the required changes in order to provide tenants with rented properties of the highest standard.
“Some of the landlords leaving the HMO market are doing so because they cannot accept or afford the costs incurred as a result of the new regulations, and the requirement to ensure their HMO properties are compliant and of a good standard. Therefore, landlords who are selling their HMOs are now unlikely to consider the property as a long-term investment.”
“Some of the landlords leaving the HMO market are doing so because they cannot accept or afford the costs incurred as a result of the new regulations, and the requirement to ensure their HMO properties are compliant and of a good standard. Therefore, landlords who are selling up their HMOs are now unlikely to consider the property as a long-term investment.”
Even if it is only some landlords selling up their HMOs, this will have an impact on the marketplace for consumers as fewer properties means less choice and higher rents on those properties available.
Regional pattens
According to the RICS survey, Scotland has been hit the hardest, with 50 per cent of the letting agencies asked noticing some kind of drop, with 37.5 per cent seeing either a moderate or considerable decline in affordable rental property.
However, the research found it was only the South East which has so far seen a significant rise in rent, with 5 per cent of agencies registering a big change; while 20 per cent of Scottish agencies saw a moderate rise and 80 per cent no rise at all.
Jonathan Cornell, technical director at Hamptons International Mortgages, commented: “The rise in Scotland is a surprise but it maybe due to the fact rents were lower compared to the rest of the UK and they were just catching up on those levels. However, it’s no surprise a lot of landlords are selling up as they don’t like paperwork and they just want to have the tenants in the property without lots of bureaucracy.”
And this is the case in point. The HMO legislation has its heart in the right place as it is trying to make things better for tenants in the PRS, something accepted by all parties. However, regulation often brings with it more paperwork and landlords are having to make the decision whether the financial rewards of maintaining HMOs within their portfolios are significant enough to cope with the added bureaucracy.
With six months since the introduction of the legislation, we are starting to see landlords make that decision and tenants will start seeing the results of this. Whether the trends highlighted by RICS will prevail remains to be seen.
