Lender says letting out as licenced HMO breaches terms and conditions?

I am a residential landlord of a small portfolio of buy-to-let properties in London. I purchased my most recent property in March 2018, and took out a 5-year fixed-rate mortgage with a lender to enable me to do so. I rent it out to 4 tenants, either professionals or mature students.

In October 2018, the local council for where the property is located, introduced an additional HMO licensing scheme, stipulating that if a property has 2 or 3 tenants and shared bathroom and kitchen facilities, it is deemed to be an HMO.

I was not made aware of this change to the law until a letting agent informed me around this time last year when seeking his services to rent out another one of my properties during the difficult Covid-19 period.

As a result, I have applied for additional HMO licences for all properties in my portfolio in keeping with the law and these applications are still being processed. When making an application, one is required to inform the mortgage provider and any other ‘interested party’. I, therefore, informed the mortgage lender for my most recent property purchase (stated above).

Not long after making the application, I received a call from their mortgage services team, saying that I cannot let out the property as an HMO as it breaches the terms and conditions of their mortgage offer, which was sent to me in February 2018. I would need to let out my property either to a family, or I presume, 2 or fewer tenants.

I checked the terms and conditions of the mortgage offer and they do indeed state that: “a condition of the advance is that the mortgaged property is not a House in Multiple Occupation (HMO) and will not be used as an HMO at any time in the future…letting it as an HMO will constitute a breach of the mortgage conditions and serious event under E2.1 of the mortgage conditions”.

However, at the time of the mortgage offer (February 2018), a HMO only related to a mandatory HMO, which is renting out to 5 or more tenants. As I was going to rent out to 4 tenants, the property was not a HMO. The additional HMO licensing scheme was introduced well after I accepted the mortgage offer and purchased the property.

There is nothing in the terms and conditions here about letting out the property as an additional HMO. I think it is grossly unfair of the mortgage lender to insist that I have to stop letting out the property to 4 tenants and can only rent it out to a family or maximum of 2 tenants.

The property was clearly not a HMO when taking out the mortgage advance as stated. To be forced to rent out the 4-bed flat to a family or a maximum of 2 tenants will grossly reduce my rent, and simply make it not feasible for me to stay in business as a property landlord. Surely this is unreasonable behaviour by the mortgage lender.

I wonder if I have a case to appeal?

Why would they insist I only let out the property to a family or 2 tenants maximum, when doing so will entail such a substantial reduction to my rent, and significantly increase my chances of defaulting on the mortgage! I have always made my mortgage payments on time.

I am sure I can’t be the only one, and that many other landlords out there must have been affected by the additional HMO licensing scheme and its conflict with mortgage lender conditions, as many landlords let out to 3 or more tenants.

I feel I am being penalised for simply being a law-abiding and conscientious landlord who has complied with the ever more legislation against landlords, including the additional HMO licensing scheme.

I earnestly seek advice and guidance.

Mr S

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