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Buy-to-Let property investors face increased licensing regulations

Buy-to-Let investors licensing
Mar 23, 2015

Buyers of student buy to let property will soon experience more hassle and red tab from soon to be introduced Homes in Multiple Occupancy (HMO) licensing regulations, contributing further to buy to let problems. This makes fully managed Purpose Built Student Accommodation all the more attractive, particularly when built by a NHBC-certified developer.



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Buy-to-Let: increasing restrictions

Buy to Let investor are being threatened with additional expense and red tape following the news that many local authorities are now picking up the “additional licensing” clause – part of the licensing regulations for Homes of Multiple Occupancy (HMOs).

Licensing for HMOs, which was introduced as part of the Housing Act 2004, actually came into force in April 2006. For a HMO to come under the mandatory licensing law, it must have three or more storeys, and be let out to five or more individuals that comprise two or more households.


Additional Licensing regulations

Buy-to-Let: increasing complications

Additional licensing allows Local Authorities (LAs) to impose their own licensing on the HMOs under their jurisdiction, where they believe these HMOs are being poorly managed, giving rise to problems that affect occupants and/or members of the public. The worrying thing for Buy to Let investors and landlords, who up until now did not come under the mandatory licensing law, is that under the additional licensing law the definition of a HMO is not limited to that previously outlined above.

The latest Local Authority to enforce additional licensing is Waltham Forest, joining the ranks of other councils like Newham, who introduced their own scheme back in January 2014. To date, under the new law Newham Council has successfully prosecuted 413 landlords for failing to sign up for additional licensing, and has already gathered enough information to prosecute another 133 landlords for actual breaches of licensing law – each one of which runs the risk of facing fines and costs of up to £25,000.

Away from the London scene, Liverpool and Leicester City Council is also getting set to launch its own additional licensing scheme, following a 3-month consultation. It is being said that the new law will pull 50,000 HMO premises into its reach. It is due to be implemented in April 2015. Many other areas of the country are expected to follow suit shortly.The student population in Leicester is in excess of 50,000 and the council are determined to protect their health and safety interests and are tough on landlords who flout the HMO licensing rules.Examples of the hard stance have been illustrated in numerous cases.

Whilst HMO landlords/investors may be able to gain a temporary stay of execution if they have been identified as requiring a license, this will only be the case if they can offer conclusive proof that the necessary works are underway to bring the premises up to the required health and safety standards.


The advantages of Purpose Built Student Accommodation

Highest yielding property investment - UK & UK (Financial Times)

One of the largest groups of tenants that inhabit HMOs here in the UK are university students. But they were given a new housing option when Purpose Built Student Accommodation (PBSA) first began to appear on the market a little over twenty years ago. It has rapidly gained in popularity in the housing stakes among students because beneficial economies of scale ensure that:

  • They are built in city centre locations, close to university campuses
  • The quality of accommodation, fixtures and fittings far exceeds those available in most HMOs
  • Management standards are high

Such is the demand for PBSA that, as an investment sector, it is now universally considered to be a world-class asset.


NHBC stamp of approval

NHBC accreditation protects property investors

The mandatory licensing of HMOSs was brought in to raise the health and safety standards of the properties. Health and safety is also an important factor with PBSA, but as these investment opportunities are often new new-builds, they are built to comply with all current health and safety regulations.

When the developer responsible for building PBSA is NHBC certified and approved, they employ best industry practice and will comply with all health and safety requirements – from drawing board to project completion.


Professional onsite property management

Professional onsite management: effortless income

Another advantage with PBSA is that, once completed, the premises are managed by specialist property management companies – often with a 24/7 on-site presence. This is enabled through beneficial economies of scale, with multiple units (100+) within one building.

Alternative types of student accommodation are often managed either by the owners, who are not normally trained professional property management experts, or by estate agents, to whom the property is but one of many that they may be responsible for managing. Because of this they do have a 24/7 on-site presence.


Superior build quality

High build quality ensure flexible resale options

The subject of build quality and property management has other ramifications too. Most Buy to Let properties that are built with student tenants in mind are not purpose built, but rather conversions, and  often carried out on limited budgets.

Unscrupulous landlords and builders often scrimp when it comes down to using quality materials, fixtures and fittings. It’s why so many are built sub-standard in terms of tenant health and safety, and why so many fail to meet licensing standards.

From an investment point of view, it means that the asset depreciates in value, and the only way of recovering the lost value is to pay out significant sums of money, not only to make sure the property can gain its license, but also so that it can attract tenants.

With PBSA premises, the original high quality build standard, and the comprehensive regular maintenance that is carried out, ensures that properties meet, and usually exceed, the necessary health and safety standards. This also helps to ensure properties retain top market value, something that is important when considering resale options.

Another fact not to be overlooked is that on-going maintenance costs are usually factored into the cost of investment packages and thus investors are not faced with extra costs. It is also worth bearing in mind the time commitments required to self-manage a student property and the limitations it brings in terms of location.


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