The HMO Trap

One of the more minor changes that the new coalition Government have made is to partially reverse one of the Labour Government’s final pieces of housing legislature; a requirement for landlords to submit a planning application if they change the use of a property from a single-household home to a House in Multiple Occupation (HMO). Since October 1st it is up to the local authorities to decide whether a planning application will be required in such cases.

For those of you that have forgotten, any rented property that contains 3 or more unrelated occupiers sharing amenities is classed as a HMO (planning class C4). This should not be confused with so called Section 254 HMOs (from Section 254 of the Housing Act 2004) which are subject to mandatory Licensing; this only applies to rented properties that have 5 or more unrelated occupiers and extend over 3 or more floors.

The change brought to mind a valuation that I carried out earlier this year where exactly such a change of use knocked several hundred thousand pounds off the value of a property.

I was asked to value a large semi-detached property in one of the nicer parts of North-West London. The property was divided up in to several bedsits and was therefore a mandatory licensed HMO. I called up Camden’s planning department and asked whether there would be any problem should the owner (or a future owner) wish to convert the property back to a family house or in to flats.

I was told that when applications of that type arrive they get referred to the housing department and if that department confirms that there is shortage of affordable housing the change of use will be resisted.

Peter Barry Surveyors undertake Valuations and Building Surveys throughout North West London including the popular areas of Hampstead NW3, Mill Hill NW7 & Kingsbury NW9 . Inspections are undertaken promptly and we have a turnaround time of between 2 and 4 days depending upon the type of report.

The policy is outlined in Camden’s Unitary Development Plan (H6) which states that the Council aims to protect HMOs and that it will not grant planning permission for a change of use or conversion that would result in the loss of housing in multiple occupation of an acceptable standard, unless it is replaced by permanently available affordable housing.

As a result I could only value the property as a business i.e. by looking at the income (rents) and expenditure and including an element of hope value that the policy would be changed or that a successful appeal could be launched. The restriction resulted in a figure several hundred thousand pounds below what the market value would have been with vacant possession.

This particular valuation was for the purposes of calculating a tax bill so the property was not being sold but it raises a serious concern for Landlords of HMOs looking to liquidate their portfolio.

I checked with 2 neighbouring Local Authorities to see whether similar policies existed and was told that Haringey no longer have a policy to seek to retain HMOs but Barnet do.

All of which highlights the need for Landlords to consider the long term implications of converting their properties to HMOs.