It looks like the post lock down property surge some had hoped for arrived even before the chancellor cut stamp duty, with a buoyant Portsmouth property market seeming to have taken off last month. PCC managed to sell a whole range of properties at much higher than expected prices but on the downside, a number of landlords are struggling to prove that their HMO has been an HMO since 2011 and others are worrying that their C3/C4 status ends next year.
What Has Happened to the Property Market?
It was expected that mortgage companies would make it harder to get a mortgage, partly because they could not guarantee that pre-Covid house prices would continue and also, due to concerns about the job security of applicants. This coupled with reticence on the part of home-owners causing them to delay moving house led to fears that we might see a major property price crash.
The Chancellor moved to minimise this by cutting stamp duty but so far, that change appears to have been unnecessary even though the mortgage companies are being much, much more careful.
All the evidence shows a very healthy property market. One non-member is selling 17 HMO's in the city, which you would have thought would have depressed prices but in spite of the ready supply, prices appear to be rising quite quickly.
What Are The Mortgage Companies Doing? ?
Each is different. Paragon have pulled out of the HMO market completely for the time being. Others are being much more careful. All seem to want proof that an HMO has all the necessary documentation – so they increasingly ask for proof that the HMO has been in full and continuous use as an HMO since 2011, in accordance with local planning regulations.
Background detail: 2011 was when PCC introduced their Article 4 Direction ensuring that any new HMO's in the city could only become HMO's if they met the rules (such as less than 10% density in the local area) and obtained planning permission based on that.
Additionally, we saw one example of a surveyor rejecting a property which has been an HMO for 20 years and which is fully licensed under the current HMO Mandatory Licensing scheme because the surveyor in question had literally interpreted some of the badly worded PCC HMO Standard and decided that the property in question did not meet the standard, so the licence may not be renewed, thus deciding the property cannot qualify for an HMO mortgage because the surveyor is not sure that it could remain an HMO. Absolute madness – but this is what we are seeing. The good news is that particular landlord remortgaged with someone else whose surveyor had no such issues.
How Should You Respond If Asked For Proof Of HMO Status?
If either your mortgage company (if you are buying or remortgaging) or your solicitor (if you are selling) or PCC (for whatever reason) asks you to prove that your property was an HMO since before the Article 4 Direction was introduced there is a simple answer and a much more complicated one.
The simple answer is to 'Self Declare' – make a written statement that it is and has been an HMO since 'insert date', sign it and get a solicitor to make it a formal sworn affidavit.
If you go this route, you need to do so before asking PCC to confirm any details as, in one example, a local solicitor said, "Essentially, I just need a timeline of consistent use that pre-dated the article 4 direction but as the council have been contacted about this, I cannot now look into a policy as the indemnity provider will deem the council on notice of a potential breach."
If the person asking the question is from PCC Planning (as they do sometimes, to get their database up to date) this should suffice.
A sworn affidavit in a sale/purchase situation will be enough to allow your solicitor to take out indemnity insurance, but if you find you need more tangible proof you may struggle. Often, the assumption is that everyone has a collection of AST's going back 10 or 15 years and they ask for copies. You may wish to do this – but do be aware that there is an interpretation of GDPR that says YOU MUST destroy personal paperwork after a certain period (many say 7 years but as HMRC require you to hold it for 6 years and they typically work 1-2 years after a tax year ends, this would require you to hold for at least 8 years). Also, individuals have a 'right to be forgotten' and whilst you need to balance this with your need to keep tax records, it would be hard to justify keeping an individuals paperwork for 9 or 10 years if they have exercised their right. You could always send through AST copies with personal information redacted as the Council would do….
Another issue in this area is that many people own HMO's and only let to groups and each group is on a single tenancy agreement (known as 'Joint and Several' in the trade) – so the concept that an HMO is a block of bedsits and there will be a history of AST's for each room just does not hold.
We would also argue that AST's can easily be generated – so using them as a basis of confirmation is not ideal. The ideal solution and often simplest, if 'self-declare' is not an option, is to show the property had an HMO Licence (as it will have done if it is in the south of the city) since 2012 and request a copy of the council tax record for the period from 2011 until the licence was granted. If it was a student HMO this should confirm that as it was exempt and if it was let to working tenants, then the fact that CT was billed to the landlord rather than the tenant should suffice.
And What About C3/C4 'dual use'
If you applied for this at some point during or after 2011, be aware that although the Portsmouth paperwork makes no mention of it, the dual usage only applies for 10 years and at the end of the period, the property automatically becomes a C3 or a C4 depending on current usage at that time.
If you wish to continue with dual use, you need to re-apply (at a cost of £465) for planning permission to categorise your property as C3/C4 for another 10 years (and at the time you apply, it really needs to be in C4 use else you may expect problems).
So What Is Happening To House Prices?
Pre-covid, an HMO would typically sell for £30-60,000 more than an identical non-HMO next door. With the inability to create new HMO's to meet the high demand in the south of the city, existing 4-5 bed HMO's have been snapped up and extensively redeveloped to accommodate 7 or 8 people so it is often quite hard to compare like with like anymore, but one thing we are seeing is that house prices generally are rising and there are buyers out there spending 'silly money' to get on the housing ladder and as a result, the 'HMO Premium' may be disappearing.
As an example, Portsmouth City Council sent 9 properties to auction. Presumably they had acquired them at some point in the past, we assume they had been tenanted by long-term tenants and have now become vacant. We assume that they could not refurbish them economically so they sent them to auction. This appears to have been a sensible policy as we know one member who has looked at a property in Stamshaw which is up to date, of a good standard and immediately lettable (2 beds, 2 downstairs rooms) and is available at an asking price of £160,000.
By comparison, one of the properties PCC sold was an almost identical layout, in Power Rd (Fratton/North End) needing roof repairs, kitchen, bathroom, central heating, some work on windows and a complete top to bottom redecorate inside and out plus clearance of a severely overgrown garden) and that sold at auction for £150,000 – far too much for any developer or buy-to-let landlord to make a reasonable return in anything other than the very long term unless house prices have risen significantly during lockdown. Only time will tell.
Written & oral information and advice from the Portsmouth & District Private Landlord's Association is given in good faith, but no responsibility whatsoever is accepted by the Association or it's officers for the accuracy of it's information & advice nor shall the Association be held responsible for the consequences of reliance upon such information.