Lending and Licensing

Hi John

I think it is far more likely that mortgages would be declined on the basis that the lender does not lend on licensed HMO's.

In order to protect their clients it is also likely that mortgage advisers would limit their recommendations to mortgage products that allowed for HMO lending, thus significantly reducing availability of suitable mortgage products and hence and competition affecting rates/terms quite negatively.
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Hello John,

I suspect you are posing this question in an attempt at disproving the very, very likely situation that mainstream lenders and their valuation surveyors avoid lending on licensing areas like the plague.

Giving the benefit of the doubt that this is a serious question and not just propaganda for your cause :-

I very much hope you've asked mortgage lenders their reaction as part of your own consultation.
As this is highly political, I'm guessing they will have then given you a bland answer along the lines of 'not policy, case-by-case basis, supporting investment etc'.
When pressed to provide statistics of approvals/refusals in existing licensing areas, they will have claimed they don't hold that information or that it is too commercially sensitive and can't be disclosed.

Landlords won't be able to give you any evidence of refusals as lenders don't need to give out that information (did you honestly not know that?).

One very solid fact is that many properties in licensing areas are well below lenders minimum value lending criteria.
I'm sure you would argue that is not the fault of licensing.
I'd say that no investor would even look at a licensing area property unless there was a significantly huge price reduction.
Perhaps we can agree it is a contributory factor?

If you seriously wish to find out BTL lenders true reaction to lending on licensed area properties, find an independent mortgage broker in a selective licensed area (not blanket !).
Research who are the top main lenders first.
Pay the broker an hourly rate for an off the record chat.
Ask the broker about the chances of a main player lending at normal rates.
Have a good laugh about it together.
Ask the broker, who will lend (there are some) and under what conditions and the rates that they would charge.

Selective areas that have already been licensed will be stigmatised for years to come. A bit like electronic tagging except it lasts forever.

I asked my mortgage broker about this. His view was that any properties located in selective licensing areas would automatically be regarded as "higher risk" and that would reduce the availability of mortgage finance and raise the cost (particularly in respect of B2L mortgage products).

It does seem perverse that Councils such as Southwark actually want to designate and publicise areas of their own Boroughs as a dangerous / run down / failing etc. Not sure how labelling an area as a bit sh*t and making it harder and more expensive to invest in that area is going to help anyone living there.

I recently remortgaged property in the London Borough of Croydon. At the time (October 2014), my properties weren't subject to licensing, but it was well known that the council were consulting on it, so I disclosed it to my mortgage broker. I have copied his response from his email word for word below:

"The issue of licensing will cause major issues with lenders going forward, at least in the short term. Most of the ones I spoke to today have a ploicy that says either a flat no, or it is down to valuers comments. The consensus seems to be that if it becomes widespread the lenders will have to re visit thier view and accept the change as too many properties will fall into it. I have been told Bristol has made it mandatory for any property that is 2 beds or more. Having said that Nat West and Coventry will consider it, and BM Solutions have no issues at all, even if it becomes standard practice."

Reply to the comment left by "Caring Landlord" at "15/03/2015 - 09:24":

This is exactly what is happening in Croydon, where I let property. There is a major development project being undertaken, in partnership with major investors, yet at the same time Croydon Council is declaring that all the privately let property in the borough is prone to anti social behaviour from tenants and therefore requires licensing! Perhaps they think hoodies will make good customers for the new Westfield centre...

Reply to the comment left by "Mandy Thomson" at "17/03/2015 - 19:23":

Further to this, this evening I attended a meeting hosted by the NLA's Gavin Dick and Croydon Landlords.

Gavin made some very useful points and observations, one of which was that lenders need to be properly consulted as they naturally have a major stake in the properties that are being licensed - not only is their investment being potentially devalued (after all, if you're saying that the properties are in some kind of crime hell hole or aren't likely to rent, you might as well say the buildings are subject to subsidence) but in the event that they needed to repossess, they then potentially become the landlord to any tenants in residence, and therefore may need to be licensed as landlord if they can't sell within a reasonable time frame.

However, Gavin pointed out that he frequently has to make presentations to lenders explaining what selective landlord licensing is and why it is done - they simply do not understand it. Now, if lenders were being frequently consulted by councils introducing licensing schemes, by now they would be more than well aware of it.

Gavin's point is that this is just one (of many) major holes in many local authority consultations - as they are failing to consult at least one group of major stakeholders, they are therefore not fully compliant with the law.

Hi John - although many will not be aware, almost all lenders (with the exception of HSBC and a few specialty lenders) do not permit licensed HMO properties. The following council of mortgage lenders document highlights the HMO policies of all banks.

http://www.cml.org.uk/cml/handbook/englandandwales/question-list/520