MONEY TALK By Ray Boulger Senior technical manager at mortgage advisers John Charcol

Ray Boulger is a property market expert

On 6 July new rules governing the upkeep of large rental property, such as student houses, in England come into force.

Property expert Ray Boulger of mortgage advisers John Charcol looks at the new rules, and what they will mean for buy-to-let property owners and tenants.

Residents in houses in multiple occupation (HMO) suffer a higher incidence of death and injury as a result of accidents than other types of property.

In response to this fact, the government introduced legislation in the Housing Act 2004 to improve the quality and safety of rental properties.

HMOs must meet rigorous fire standards. They need fire doors, emergency lights, alarms in the mains power supply, signs on the walls for the escape routes and door locks will have to be fitted.

And some types of HMOs will require a licence to be granted by the local authority.

Basic checks

As part of this new licensing regime, local authorities will have to carry out basic checks on individual landlords, in particular to make sure they do not have a criminal record.

Licences for each HMO will be specific to the landlord as well as the property and in future, when reviewing an existing portfolio of buy-to-let properties, or contemplating buying any new property, landlords need to factor in the costs of complying with the HMO rules and obtaining a licence.

The licence will not be transferable, thus the new landlord will have to meet the costs of obtaining a new licence.

Licence costs

Under the new rules local authorities have almost been given carte blanche by the government to charge whatever they like for the new licence.

Initial indications are that the fee will vary enormously from authority to authority, with a range of �100 to �1,100 so far reported.

HMO KEY FACTS An HMO is defined in the Housing Act as any building in which two or more families/individuals share basic amenities. An HMO which automatically requires a licence is a house with three or more storeys which accommodates five or more people unrelated to one another. Local authorities will also have the discretion to require other HMOs to have a licence

This huge variation in the cost of licences across the country will mean that location will now become even more important when considering the purchase of a buy-to-let property.

There appears to be little apart from the fear of regulatory action to stop a local authority increasing this fee on a whim.

As a result of these new regulations some investors will avoid buying HMOs, which will force up rental yields as less of this type of property becomes available for rent.

When the reduced supply of properties drives yields up far enough to cover the extra costs, investors will return to the HMO.

In some cases, landlords may find it relatively easy to charge a higher rent because of the improvements they have been forced to make in order to get a licence.

Fine threat

Apart from a very wide variation in the size of the licensing fees they plan to charge, the extent to which local authorities are up to speed on this legislation also varies significantly.

Landlords can be subject to a fine of up to �20,000 if they own an HMO after 6 July and do not have a licence.

However, I suspect that most local authorities will start off by warning landlords without a licence to get one and providing they do so will take no further action.

I do not expect many fines to be levied before the end of this year, and even when fines do start to be levied I expect most to be well below the maximum figure.

Most lenders currently won't lend on HMOs but most will find that some properties they have lent on have become HMOs under the new regulations.

However, under the new rules the average quality of HMOs should improve over time, and so there are pros as well as cons for lenders.

As for tenants, they will benefit from the fact that properties will have to be up to scratch.