New regulations introduced by the UK government in 2018 has likely caused the decline in HMOs over the last year, suggests data from Octane Capital.

The government implemented new rules that require that a House of Multiple Occupancy (HMO) applies for a licence for all properties that house five or more people who are not members of the same family.  Before this rule, licences were only required for houses that had three floors or more that housed five or more people who are not the same members of a family.

Furthermore, the new rules state that in order for a licence to be obtained, all of the rooms in the property must exceed a minimum size cand there is a restriction on the number of people (over 10 years old) that can sleep in it.

The new regulations were introduced to improve the standard of living for tenants, ensuring better safety and health measures, and have been gradually rolled out throughout the UK.  Although, these rules do improve the standards for tenants, many landlords have been discouraged from their HMO investments, instead seeking to offload their rental stock to save the hassle of dealing with more red tape from the new rule changes.

Latest statistics show that annually, the number of HMOs in the UK has declined by 3%. From 511,278 in 2019/2020 to 497,884 in 2020/21.  The most apparent decline is in London where the number of HMOs has fallen by 13%, which has affected the national decline statistics.  Eleven different London boroughs have reported declines, with Ealing showing a HMO decline of -59% and Lambeth HMO figures declining by -58%.  Redbridge has reported a half in the number of HMOs and Barnet a decline of -37%.  Other declines are as follows:

  • Greenwich (-34%)
  • Enfield (-30%)
  • Wandsworth (-18%)
  • Croydon (-13%)
  • Hillingdon (-10%)
  • Merton (-2%)
  • Tower Hamlets (-1%).

Jonathan Samuels, CEO of Octane Capital, commented: “It’s only right that all efforts should be made to ensure the safety and wellbeing of the nation’s tenants and that everyone is afforded the right to a basic standard of living. The changes to HMO licensing have certainly looked to ensure this, but as a result, we have seen a decline in the level of operational HMOs across the rental market, particularly within London.

This essentially means that those reliant on the rental sector now have even less choice when it comes to finding suitable, safe accommodation, but that’s not to say it can’t be found.

We’ve continued to fund a high number of quality HMO deals throughout the pandemic and this sustained level of interest from professional investors is yet to show any signs of decline. This includes a large number of refurbishment transactions whereby investors are looking to drastically improve the quality of existing HMOs, so while volume has certainly fallen, we don’t believe this will be a long-term trend and should benefit the nation’s tenants in the long run.”

You can apply for a HMO licence and read about the regulations here.