If you are a landlord of an HMO (House in Multiple Occupation) or a tenant of part of a property designated as such, you might need to be prepared for a shock.

An House in Multiple Occupation is described as one rented out by at least three people who are not from one household (for example, a family), but share facilities, such as kitchens and bathrooms.

Local councils are seeking to have HMOs reclassified, so that council tax becomes liable on each of the tenancies, rather than on the single property itself. In one example, a five bedroom home had its council tax quadrupled from £1,300 per year to £4,890. It was reclassified as five one-bed homes, even though three of the bedrooms did not have ensuite bathrooms and none had kitchen facilities.¹

Normally, landlords receive a council tax bill for the one property, which is split between the tenants as part of the rental payment charged. Now that councils are asking the Valuation Office to revalue HMOs on the basis of separating out individual tenancies, landlords can only increase rents to take account of the extra charges.

This could cause financial hardship for many, coming as it does on the heels of cost of living rises, especially energy costs. Landlords will also be reluctant to pass on the extra costs because of the danger of having tenants in arrears or quitting tenancies altogether.

For councils who are cash strapped, this is seen as a good way to raise money in what they see as a painless way. Government figures show there are 500,000 HMOs in England² that could be affected. However, the likely effect will be to price more would be tenants out of the rental market and put more pressure on their own housing departments.

The viability of remaining a landlord of an HMO is now going to be called into question, with reports that at least one landlord has already filed for bankruptcy as a result of the recent changes³. If this money raising tactic by councils increases, it is very likely we will be seeing less rental property on the market at a time when there is already a shortage.

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Sources

1 – Lawford, M. (2022) Council Tax on my Buy-to-let has quadrupled to £7,000. Available at: https://www.telegraph.co.uk/property/buy-to-let/council-tax-buy-to-let-has-quadrupled-7000/ (Accessed 29^th March 2022)

2 – Wilson, W., Cromarty, H (2019) House of Commons Library: Houses in Multiple Occupation in England and Wales. Available at: https://researchbriefings.files.parliament.uk/documents/SN00708/SN00708.pdf (Accessed 29th March 2022)

3 – Central Housing Group (2022) Wave of ‘unfair’ HMO council tax revaluations revealed that can quadruple bills. Available at https://centralhousinggroup.com/wave-of-unfair-hmo-council-tax-revaluations-revealed-that-can-quadruple-bills/ (29^th March 2022)