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HMO licences, minimum room sizes & mortgage relief cuts –new rules for landlords to be aware of

HMO licences

Under new rules, more landlords renting homes to multiple tenants need to ensure they are licensed with local authorities. It’s estimated an extra 180,000 homes in multiple occupation (HMOs) are included in the new legislation aimed at improving standards in the growing private rented sector.

Previously, landlords only needed to get a licence if their rental property had three or more storeys and was being occupied by at least five individuals who are not related to each other. In addition, some local authorities required licences for HMOs in specific areas even if they didn’t meet that criteria.

From October 1 2018, licencing has been extended to smaller properties. This means any HMO, regardless of size, with five or more tenants will require a licence. Landlords who don’t apply for a licence will be classed as illegally letting a property. Government says growing numbers of young professionals,  migrant workers and students live in HMOs. Aims include reducing the risk of overcrowding and fire hazard in properties that were not designed for multiple occupation.

New rules for landlords
New rules for landlords

Minimum room sizes

The changes to licences aren’t the only new rules landlords need to be aware of. They must also comply with new nationwide standards for bedroom sizes. The minimum sizes are:

·       4.64m2 for any room in which a child under the age of 10 sleeps

·       6.51m2 for any room in which a child over the age of 10 sleeps

·       10.22m2 for any room in which two people over the age of 10 sleep

Any room that is smaller than 4.64m2 can’t be used as a bedroom. Under the shake-up, the landlord will have to inform their local housing authority of any room in the HMO that is smaller than that, regardless of how it’s being used.

Ongoing changes in mortgage relief

More buy-to-let investors have turned to HMOs because high property prices mean rental yields can be low on flats and smaller properties. They can often earn more by renting out a property room by room to five or more individuals than by letting to a single family.

Before April 2017, it was possible for landlords to deduct the interest they paid on their mortgages from their taxable income, reducing the amount of income that would be taxed. But ministers changed the rules amid concerns buy-to-let landlords had an unfair tax advantage over homeowners.

The amount of tax relief currently available is 50 per cent of the mortgage interest taxed at the basic rate of 20 per cent. This will reduce to 25 per cent in 2019/20 and disappear completely in 2020-21 when no mortgage interest will be available.

Stricter energy efficiency rules

Since April this year, all privately-rented homes in England and Wales for new and renewed tenancies must be at least an “E” on their official Energy Performance Certificates. This minimum standard will be extended to existing tenancies in 2020. Landlords who break the rules - by letting properties with F or G ratings - could face fines up to £5,000 per property.

While most rental homes easily meet the new energy efficiency rules, some don’t. There could be up to 285,000 properties in need of urgent work, such as new boiler, insulation or double glazing, according to government figures. Listed properties are exempt but landlords of non-listed but energy inefficient older homes have to make improvements. The Green Deal Finance Company offers investors loans to carry out work which are then paid off out of savings from energy bills. Energy providers may also pay for smaller upgrades.

New eviction rules

Eviction rules have been changed to prevent so-called ‘revenge evictions’. Section 21 orders are two-month eviction notices that a landlord can serve without reason. It is said these have often been misused to throw tenants out unfairly. Generation Rent, a lobbying group, has called on the government to scrap Section 21 orders. But the Residential Landlords Association, the trade body, said landlords still need Section 21 orders, for cases such as tenants not paying rent or being anti-social or when the landlord needs to sell the property. The alternative, a Section 8 notice, requires landlords to state why they want to evict a tenant but can take more than four months.

From October 1 2018, the rules have been changed so that if a tenant has a legitimate complaint, such as essential repairs that are needed, and it isn’t dealt with, they can  complain to the local housing authority. If the council then issues an improvement notice ordering the work to be done, the landlord will need to act on that before taking back possession of the property by issueing a Section 21 notice. Otherwise, the notice will be invalid.

The Deregulation Act 2015 changed how landlords can repossess properties, though this was limited to tenancies agreed before October 1 2015. Since October 1 2018, these new rules have been rolled out to include to all tenancies. What did this mean? Basically, a Section 21 notice cannot be issued during the first four months of a tenancy. Furthermore, the notice is only valid for six months from the date on which it was issued. There is a six-month window in which to follow-up with possession proceedings. If the landlord doesn’t, they will have to issue another Section 21 notice.

Rogue landlords database

A national database which enables councils to share information about rogue landlords went live last April. The database was set up by Government as part of an effort to crackdown on illegal practices in the private rented sector. Landlords convicted of a range of criminal offences, such as letting overcrowded properties, gas safety offences and unlawful eviction, will be added to the database to make it easier for local authorities to monitor them closely. However the scheme has been criticised as the database hasn’t been made publicly available, so letting agents and tenants can’t see who is listed.

Estate agents have warned a growing number of landlords are quitting the sector after the tax and regulation changes. This means supply for tenants is continuing to reduce. The amount lent for the purchase of rental properties fell by 22 per cent in May compared to the previous year, according to UK Finance, a trade body.

If you are a Landlord or a Tenant, you may find some of the links below useful: