As I write this update, Brexit has paralysed the market place and confidence is on the wane. Much of the activity in the market is HMO investors remortgaging, often at very inflated values. We are also seeing the changes that came into play late October starting to bite, but worryingly we are still seeing firms forgetting to check the individual local authority website for the relevant HMO amenity standards. Far too often we receive reports where there is clearly insufficient amenity space for the size of rooms- so if there is no separate living room how large does the bedroom need to be? It is absolutely critical that we as surveyors check that website and using Nottingham as an example adopt the relevant criteria (PLEASE NOTE THIS APPLIES TO NOTTINGHAM ONLY):
HMO Amenity Guidance 3 – Space provision for Licensable and non-Licensable HMOs
Bedrooms in HMOs where there is adequate dining space elsewhere and where cooking facilities are not provided in the room.
One person room
8 square metres
Two person room 12 square metres
Three person room 17 square metres
Four person room 22 square metres
Bedrooms in HMOs where there is no lounge/dining space elsewhere and where cooking facilities are not provided in the room.
One person room
10 square metres
Two person room 15 square metres
Three person room 20 square metres
Four person room 25 square metres
Bedrooms where cooking facilities are provided in the same room.
One person room
14 square metres
Two person room 18 square metres
Three person room 23 square metres
Four person room 28 square metres
In addition to the above tables the following notes also apply.
HMOs shall not be occupied in such numbers that it is not possible to avoid persons aged over 10 years old of the opposite sexes who are not living together as partners sleeping in the same room.
Where the ceiling height is reduced to less than 5 feet (approximately 1.53 metres) due to, for example, a sloping roof / ceiling this area shall be excluded when calculating the floor area.
Shared dining space
Where dining space in a separate room or rooms is needed, a minimum of 2 square metres per person will be required. Persons occupying bedrooms / living units with exclusive use of adequate and suitably located dining space can be excluded from the calculation.
Any shared dining space shall be suitably and conveniently located such that food can be carried from the kitchen to the dining area without going up or down stairs.
Where there is a kitchen diner in one room, the total area provided may be taken into account when calculating the required space
Where these are used by up to five (5) persons the minimum size shall be 7 square metres. Approximately 2 square metres shall be added for each additional person sharing the kitchen.
Kitchens / kitchen areas shall be of such layout and size to adequately enable those sharing to safely store, prepare and cook food.
The space to accommodate an ensuite facility would be in addition to the floor area detailed in the tables above. Reference should also be made to HMO Amenity Guidance 2 – Shared bathing and toilet facilities for licensable HMOs
The dimensions and areas specified shall normally be regarded as the minimum, particularly with regard to new proposals. However it is recognised that existing buildings cannot always achieve these minima. A degree of flexibility will sometimes be possible if other compensating features are present. Conversely it should be noted that irrespective of the dimensions, the shape and useable living space of any room is a determining factor in the calculation of the maximum number of people for which it is suitable.
Ignorance is no defence as only experienced HMO surveyors should be undertaking this type of work. The information is in the public domain and the impact of licenses being either not granted, or restricted, will be very significant, particularly if you have adopted an investment approach. Both capital value and rental value will be impacted and the lender could be faced with a loan that exceeds the value of the property.
The “gold rush” of Southern based investors purchasing HMO propositions in non-core HMO locations is a major concerns and just because it is has six ensuite shower rooms does not necessarily turn it into an investment proposition. Increasingly due to sustainability and locational factors we are seeing values in these areas very much in line with single dwelling levels perhaps with a modest premium. Quite often we see vast sums of money spent on the HMO project where the cost of works far outstrips the increase in value. So don’t be blinded by that the project costs. It’s still a case of what will it sell for in the market place. Small HMO properties are particularly challenging as they now fall under mandatory licencing and in many cases struggle to meet the regulations.
Perhaps the basement conversion in some unfashionable town wasn’t such a good idea.
So the message is clear – for an HMO to work it must be of the correct size in terms of bedroom and amenity space, the rent must be sustainable and the approach to capital value in line with the recommended RICS approach and the tone of value for the area.