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A stealth tax on landlords? Buy-to-let owners set to hand £79m as new shared housing licensing comes into force

Daily Mail logo Daily Mail 20/09/2018 Will Kirkman For Thisismoney.co.uk

© Getty Local authorities will collect a whopping £79million from 77,000 landlords this month as new licensing rules come into effect, This is Money can reveal.

HMO licensing - which stands for houses in multiple occupation - already applies to landlords who rent their properties to five or more tenants from two or more different households where the property is three or more storeys.

But from 1 October, any property let to five or more tenants from two or more households will be caught by the rules - regardless of the number of floors.

The changes to the law are set to affect over 160,000 properties in England and Wales, with 77,194 landlords being expected to apply for the new licence.

a large brick building with grass in front of a house: The changes to the licensing are set to affect over 160,000 properties, ran by 77,194 landlords © Provided by Associated Newspapers Limited The changes to the licensing are set to affect over 160,000 properties, ran by 77,194 landlords

Research, commissioned by Currys PC World Business and carried out by the Centre for Economics and Business Research exclusively for This is Money, has revealed that licence fees alone will hit English landlords with a bill for £1,027 each - £495 per property.

Local authorities can each stand to receive £243,070 on average from the fees. 

Cebr also estimateslandlords will have to spend around three hours per property applying for licences, familiarising themselves with legislation and taking time out to facilitate property inspections.

On top if this, Government predicts that a total of 87,011 HMOs will be impacted by additional rules around waste disposal.

Overall, Cebr predicts the combined cost of time, licensing fees and complying with new bin rules will cost landlords a total £95million.

What is an HMO?

An HMO stands for a house in multiple occupation. It is any property let to five or more tenants who come from two or more different households and at the moment, licensing only applies where the property is three or more storeys. 

Examples would be typical student housing and properties let to young professionals in city centres. HMOs are increasingly common as a buy-to-let investment for a few reasons.

Because the property is let to a number of different tenants, if one tenant falls behind on their rent, the landlord is usually still able to cover their mortgage payments from the rental income from the other tenants. 

a group of people in a room: HMOs can be typical student houses and properties let to young professionals in city centres © Provided by Associated Newspapers Limited HMOs can be typical student houses and properties let to young professionals in city centres

Letting to multiple tenants on different tenancy agreements also means that landlords can generate higher rental incomes. 

For example, letting a three-bed house to a family might generate £2,500 rent a month. 

Letting the same property to three separate tenants might allow you to charge each one £1,000 a month, stepping up overall income to £3,000. 

Following several changes to mortgage rules and tax treatment over the past few years, buy-to-let has become less profitable. Because this type of property offers higher returns, many landlords have sold out of lower profit properties and reinvested in HMOs.   

Landlords breaking the rules could face a £30,000 fine, and may end up with a criminal record © Provided by Associated Newspapers Limited Landlords breaking the rules could face a £30,000 fine, and may end up with a criminal record

What happens if a landlord doesn't comply? 

Your local authority may decide to request details of room sizes that are used for sleeping accommodation as part of the application process - and they may also choose to inspect properties at their discretion. 

If a landlord breaks these rules and is convicted, they are liable to an unlimited fine, or the local housing authority may impose a financial penalty of up to £30,000 as an alternative to prosecution.

The local housing authority must allow a 'reasonable period' of up to 18 months for any overcrowding problems to be solved once identified. 

HOW DO YOU APPLY FOR AN HMO LICENCE? 

If it turns out you need a mandatory HMO licence, you'll need to apply to your local council.

They'll most likely want to see a floor plan, and you'll need to pay an application fee. These fees vary by council but are usually around £500 and last for five years.

Once you've submitted your application you will have to be vetted by the council before you receive your licence. Check with your local council to see what their specific rules are.

As with breaching the licence, failure to obtain one can result in prosecution, fines, and a criminal record - and you must apply by 1 October.  

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