Background
Additional Licensing applies to certain rental houses/flats in multiple occupation that are not covered by a mandatory HMO licensing. These licenses usually have been introduced by Local Authorities to control the maximum number of rental properties in a defined area.
The additional license scheme varies with each Local Authority. In Bristol the additional license applies to privately rented flats/houses where three or four unrelated people live in two or more households and share facilities. Other local authorities will increase the limit to five people.
What is a household?
For example, five friends are five households, even if they share a tenancy, and a cohabiting couple and a friend would constitute two households. I recommend you contact your Local Authority for their current criteria.
How do lenders check if the property is an Additional License Area?
Lenders rely on the valuer to confirm if an additional license is required.
From recent TMW valuation on a 3 bed house:
“The property lies within an area where selective/additional licensing operates. Conveyancer to confirm that the Landlord and/or Managing Agent have applied for appropriate Licensing before completion of the advance.”
What if I apply to a lender that does not accept an additional license?
The mortgage will be declined and the valuation fee lost.
What is classed as a bedroom?
The lender relies on the valuer to confirm the number of lettable rooms. This figure could be higher than the number of bedrooms shown on the sales particulars. For example, if the property is a three bed property with two receptions it will be treated as a four let. It is automatically assumed one of the reception rooms will be rented as a bedroom. There is no discretion on this point.
I am going to rent to a family
If the property is in an Additional License Area, and you intend to rent to a family, the local authority will be fine. However, the lender will always take a different view as you will have the option to rent out the property on a different basis in the future.
Will my current lender be advised if I apply for a licence?
The Local Authority will write to your existing lenders advising them that you have applied for a licence. The lender will have 3 options.
- Give permission.
- Give permission and charge a higher rate.
- As you have breached the terms and conditions of the mortgage offer, the lender will demand the mortgage be repaid (remortgage to new lender).
Best Rate options
A significant rate saving can be gained by understanding how lenders view the difference between a mandatory license compared to an additional license.
The majority of buy-to-let lenders will treat an additional license as the same risk as a mandatory license and charge a higher rate accordingly.
There are lenders who take a more helpful approach and will lend at competitive standard buy-to-let rates subject to criteria.
Basic Criteria
- All tenants on one AST
- Up to 5 tenants/5 lettable rooms
- 80% loan to value
Subject to valuer comments.
As this is niche lending, there is a reduced choice of lenders. The most competitive lenders currently are The Mortgage Works, Coventry Building Society and BM Solutions. There are differences in criteria regarding number of bedrooms and landlords income etc.
As criteria changes on a regular basis, I recommend you contact us with your property purchase/remortgage requirements.
CONTACT US FOR THE CURRENT RATES AND A FREE CONSULTATION
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How Much Will It Cost Me For Your Advice?
A fee of £495 is payable on completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender for arranging the mortgage.
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
We do not give or imply legal or taxation advice. We recommend you contact a solicitor or accountant for advice in these areas.
The Financial Conduct Authority does not regulate some forms of buy-to-lets.
Think carefully before securing other debts against your home/property. Your home/property may be repossessed if you do not keep up repayments on your mortgage.
