New tenancy rules, which came into force on 1st October 2018, resulted in any shared home occupied by a minimum of five residents from at least two different families coming under mandatory licensing regulations for HMO (Houses in Multiple Occupation). Many landlords let out shared homes, and as the former three-storey rule is now void, even bungalows can now be included within the mandatory licensing scheme for HMOs. This could result in some landlords spending thousands to bring their rental properties up to the correct room size requirements and safety standards for HMOs, installing features such as hard-wired fire alarms and fire doors.
Previously, any rental property housing a minimum of five unrelated tenants was classed as an HMO, but it did not necessarily need a license unless it contained three storeys. With the new rules implemented, local authorities have the power to impose their own interpretations of these rules, which are already typically demanding.
Now, landlords are faced with a dilemma: do they apply for the licence, sacrifice a large investment and increase their costs, or do they evict a number of tenants to bring the property’s occupancy level under five, which would cause a loss of income. In both scenarios, landlords may be obliged to increase rents to recover some loss of income.
The new standards in minimum room sizes will result in alterations needed to rental properties in some cases, which could be considerable. If these changes cannot be made, some tenants will be forced to move out of HMOs. Since 1st October, it is estimated that an extra 160,000 homes will be covered by the new mandatory licensing rules, where landlords should have already applied for licenses and taken necessary changes to ensure compliance with the new requirements. Under these rule changes, many more rental homes will also need to be certified and inspected by local authorities.
Often, renters see living within an HMO as a more affordable option, and are content to overlook small room sizes and poor conditions, typical of many shared houses, if they are on lower incomes or saving for a deposit. However, with the government’s ambitions to improve the conditions of HMOs, renting a shared home is unlikely to remain a much cheaper option in the future.
Tenants have found that as property prices are so extortionately high, saving for a deposit is a long and difficult process, where rents for one bedroom flats are too expensive to save any money. Many tenants find that the only way to afford to save a deposit is to rent a room in an HMO. Houses in multiple occupation are a sociable approach to renting, but the property quality can vary, for example, carpets are often not fitted, and leaks and damaged kitchen units can occur in the worst cases.
If rent costs rise due to the new legislation, many tenants within HMOs will struggle to afford rent, as they simply do not have the extra cash. The Centre for Economics and Business Research has estimated that the new licencing scheme will likely cost each landlord £1,200, a massive £95 million in total.
The new legislation applies to properties located in England, and focuses on safety issues and improving the conditions of HMOs.
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