Housing Act affects Buy to Let mortgage lending

Housing Act affects Buy to Let mortgage lending

Mortgages for Business, the specialist Buy to Let mortgage broker, are reporting that the implementation of the 2004 Housing Act is beginning to have adverse affects on Buy to Let mortgage lending.

The Act, in part, deals specifically with Houses in Multiple Occupancy (HMOs) stating any property that falls into this category must have licences for both the property and the landlord.  The licences are issued by the landlord’s local authority and are granted on the basis of the property and individual meeting a set series of guidelines.  

The licensing came in affect on 6th April 2006, but the government has given landlords a three month grace period until 6th July when it will give local authorities the power to punish individuals appropriately.  Maximum penalties can include a £20,000 fine.

Only certain multiple occupancy residency will fall into the HMO category, but a good rule of thumb for landlords to consider will be any property let to three or more tenants forming two separate households.

David Whittaker, Managing Director of Mortgages for Business comments:

“The HMO property type has always proved challenging to finance; very few lenders have historically had an appetite for the sector.  The new HMO regulations contained in the Housing Act seems to have further complicated the issue.”

“Currently Buy to Let mortgage lenders are reviewing their approach to the sector in light of the new regulations.  Some lenders have temporarily withdrawn whilst others have announced changing in their lending criteria.  There is some anticipation in the marketplace that some lenders may even withdraw from the sector altogether.”

Mortgage Express, for example, in reaction to the legalisation will now only allow multiple letting to tenants on one tenancy agreement, meaning tenants may need to share a tenancy agreement with parties that do not previously know.  Additionally any property with five tenants or more now must have a second bathroom.  The most dramatic change will be their decision to no longer lend on bed-sits (properties with cooking facilities in the bedrooms).

David Whittaker points to some potential difficulties:

“Early indications are that most lenders will need to see a copy of the HMO licences before they will lend on properties that fall into this category.  There is potential for landlord headaches here because they could find themselves in a catch 22 situation.  If a Buy to Let investor sees a property with potential that falls into the HMO category, they will need a licence before funding can be gained.  However they are obviously not going to apply for a licence until they have actually brought the property and to make the purchase they will need the mortgage.

In the short term some lenders are already seeking evidence of licences for existing properties yet many councils have yet to establish systems for processing HMO licences.  Even where these do exist, backlogs will inevitably occur at outset leaving a landlord unable to satisfy the mortgage condition on any refinancing exercise.

As with many situations there will be work arounds but it does illustrate some the problems facing landlords letting in the HMO sector.”

Mortgages for Business are a leading specialist UK Buy to Let mortgage broker, www.mortgagesforbusiness.co.uk, 0845 345 6788