The Impact of New HMO Regulations on PBSA23 08 2018
Due to ever-evolving legislation and new regulations, landlords have faced many changes in recent times especially regarding the tax treatment of buy-to-let properties.
While some landlords have chosen to set up a limited company to reduce their tax bill, two more major changes are now being introduced.
Announcements have been made to introduce a new licensing extension for HMOs for those landlords whose property is occupied by five or more people (including children) living in two or more separate households. From October when the regulations come into effect, landlords will be required to seek a licence in such situations.
Mandatory licensing currently only applies to properties of three storeys and above, but this regulation will be superseded by the new rules.
The Department for Communities and Local Government has also announced that from 1st October, there will be minimum room sizes for all HMOs let privately. Rooms for one adult must be no smaller than 6.51 square metres; for those rooms sleeping two adults, a minimum 10.22 square metres of space is required. This part of the new regulations is aimed towards reducing overcrowding in rental properties.
It is perhaps not surprising that we anticipate a sharp spike in purpose-built student accommodation in the light of such developments. The new regulations add another requirement to the buy-to-let route which some landlords may be reluctant to take. It may also mean adjusting and renovating your property in order to comply with the new minimum size requirements.
Of course, if you currently have a license for your HMO under the 2006 defined regulations, that license will continue to be valid until the expiry date after which you must apply for a new one. If you currently rent an HMO that did not require licensing but will do when the new regulations come into effect, you must apply for a licence before 1 October 2018 in order to continue to legally rent the property.
The Rise of PBSA
For new investors, the prospect of changing regulations may prove too much of a headache in which case we may recommend an alternative investment option. PBSA (purpose-built student accommodation) is a consistently thriving sector where demand is constantly exceeding supply resulting in an increased number and increased quality of accommodation to suit expectations and numbers.
HMOs are currently unable to fill the supply-demand void and the new regulations may potentially make this even more difficult as the buy to let market becomes even more stringent.
All of this means that PBSAs are becoming more and more viable as an investment option. When you choose the right location and a PBSA created with the idea of providing added value to the students firmly in mind, this represents a savvy investment choice.
The issue of welfare is becoming increasingly prevalent with PBSAs where accommodation needs to tick all the comfort and aesthetic boxes as well as provide strong support facilities and experience in order to complement an all-round rewarding university experience.
In addition, the UK remains an extremely attractive destination for international students which means that offering a fulfilling experience that covers academic as well as social and wellness requirements is essential to maintain a competitive standpoint.
Back to Buy to Let
Of course, this is not to say that buy to let is no longer a viable property investment option. Landlords simply need to be aware of any new obligations they will have from the 1st October and be prepared to comply with minimum room sizes and licensing requirements.
Despite reports to the contrary, the buy to let market still offers plentiful opportunity for property investors wishing to add to, diversify or create a portfolio. Cities including Birmingham, Liverpool and Manchester as well as more rural locations comprise the UK buy to let hotspots.
There are plenty of different opportunities available depending on whether you’re looking to tip the scales more in the direction of yield or growth. With so many new build properties available, there is also plenty of scope to invest in a property closer to home or further afield.
For more information on investing in buy to let or Purpose Built Student Accommodation and building up a strong property investment portfolio, contact our team at Alesco today.