What are the rules behind HMO properties & how do you apply for finance?

What are the current rules?

HMO (Houses of Multiple Occupancy) properties are regulated by The Management of House in Multiple Occupation (England) Regulations 2006 (SI 2006 No. 372) as well as being subject to selective or additional licensing by local authorities in England.

Additional licensing allows local authorities to apply further conditions to investors of HMO properties where they feel the current mandatory regulations are not stringent enough, particularly if an area is having problems with HMO properties. Conversely, selective licensing can apply to all or some landlords in an area such as a ‘fit and proper person’ test.

What is included in the current rules?

For HMO properties there are more rigorous and stringent standards to pass for licensing which impacts the finance available from lenders.

First of all there is floor spacing to adhere to, so no less than 4.64 square metres (for a child  aged under 10 years) and no less than 6.51 square metres for one person (aged over 10 years). If two people are sharing sleeping accommodation (aged over 10 years) then floor space should be a minimum of 10.22 square metres.

The other consideration is safety measures to be undertaken including fire escapes free from obstruction and in good condition. As well as the supply and maintenance of key utilities at the HMO property including water supply and drainage as well as gas and electricity and arranging an Annual Gas Safety check and certificate. To see the full list of regulations click on the link: bit.ly/2ubG8PU.

Where can you obtain finance and lending?

Finance can be used for different reasons including refurbishment finance to re-convert and change layout of a HMO property. After completion of refurbishment of the HMO property as part of the ‘exit strategy’ finance can be released through gained equity to invest in other another property.

There are three tiers of finance available to buyers of HMO properties. It is important to understand the criteria for each one to be able to pick the best type for your situation.

Tier 1 funding is provided by high street banks who usually give a lower rate of interest but have more criteria to be accepted.

Tier 2 funding is provided by what is known as ‘challenger banks’ who are challenging high street banks by providing funding when they usually say no.

Tier 3 funders deal with the more unusual property or where circumstances do not meet a conventional lender criteria.

If you have approached a high street bank for funding and they have said no give JJ Commercial Finance a call on 07399 660 002 or send us a message. To find out more about us and who we have worked with take a look at some of our past clients or to see our FAQs head to our website.