As detailed by the immigration act, landlords must be clued up on each one of their tenants' residency and work status. They must also monitor tenants’ behaviour to ensure they are complying with all statuary information, such as the government’s guide to renting.
Key Points
- Portfolio landlords have reviewed their portfolios in light of tax changes
- The definition of HMOs is changing from October this year
- More properties will fall under the HMO classification, which landlords may not be aware of
Landlords may be able to get HMO training via their local authority landlord accreditation schemes, or via organisations such as the National Landlords Association, but there is a cost associated with obtaining an HMO licence, which should not be overlooked.
Demand and location
Landlords also need to consider where their property is located and where demand for HMO in that area is coming from. In student cities they run a higher risk of voids, related to the density of HMO in the area and the factor of seasonality or term times. This can be mitigated with good planning, factoring in three months’ void over the summer or assuring student tenants sign up for 12-month leases.
Tenant churn is also much higher with HMOs, as generally they are interim housing solutions while tenants save for their own home or seek more permanent, private accommodation.
Average tenancies in HMOs have risen since the financial crisis but are still shorter than standard buy-to-let properties.
Finally, landlords have had other issues to contend with recently, not least the Energy Efficiency Regulations 2015, which meant that from April 2018, landlords of privately rented domestic and non-domestic properties in England or Wales have had to ensure their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a tenancy to new or existing tenants.
These requirements will then apply to all privately rented properties in England and Wales – even where there has been no change in tenancy arrangements – from 1 April 2020 for domestic properties, and from 1 April 2023 for non-domestic properties.
And finally, overall economic uncertainty at a macro level as a result of Brexit has led to caution across asset classes, with residential property no exception to this less bullish outlook. Consequently, it is an area in which a knowledgeable adviser can make a significant positive impact, and in an increasingly regulated space that impact can have greater value for their clients.
Before committing, it is essential that prospective HMO landlords do their research, carefully comparing the additional work and expense against the profit they would be likely to make.
Housing as a sector has been a political hot potato for several years, and increased regulation has been a result of the government trying to crack down on what it saw as an industry rife with landlords exploiting tenants.
Of course, in reality this behaviour was not as widespread as Westminster would like to think, and I am sure the landlord clients of readers of this title are as far away as possible from those stereotypes.
