The experts are warning, applications for retrospective planning permission to convert a house into a house in multiple occupation (HMO) could be rejected and result in properties valued at zero.
Dal Sidhu, managing director of Mortgage Solutions, said councils that have set the Article 4 directive were trying to discourage the establishment of HMOs meaning the landlords of existing properties could face troubles when refinancing or selling.
He said when landlords attempted to remortgage or sell the HMO, an inspector could give a “new set of protocol questions” to define whether a property was a legal HMO with the appropriate planning consent.
He added: “This prevents them from selling or borrowing because if the surveyor or the lender is not able to satisfy their criteria for the lawfulness of that HMO then the [mortgage] deal can and does fall through.”
“Where the landlord fails to provide proof that it’s a lawful HMO, properties are then being valued at zero,” he said.
Dal Sidhu also added the existing HMO license would not cover the directive as it doesn’t include planning permissions.
For counties where the order is not in place, a Permitted Development Right is needed to convert properties from a C3 class to a C4 class – a small HMO of three to six occupants. Here planning permission is only legally needed for properties that have seven or more tenants.
However, Sidhu advised that landlords obtain a Certificate of Lawful Development (CLD) to prove an HMO is regularised and legal and has not preached previous planning conditions under Permitted Developments.
Once this is granted by the local planning authority, the CLD means no enforcement action can be done to the development referred to in the certificate.
The head of London and home counties at mortgage adviser firm Vincent Burch, Ertash Ali, claimed that he had already seen some HMO landlords face trouble due to the directive.
“I’ve had people who have had to get bridging finance or find other means to increase room size to adhere to standards,” he said.
He said: “Some have had to convert back to a standard residential property as it’s no longer an option to be an HMO.”