Market analysis from Octane Capital has revealed that the number of houses in multiple occupation (HMOs) in England has dropped in the past year.

According to the property lending experts, the decline is likely caused by strict new regulations introduced by the government.

What changes have we seen in HMOs?

In 2018, the UK government introduced new regulations which insist that a HMO licence is required for all properties that are occupied by five or more people who are not members of one family.

Previously, a licence was only required for properties of three storeys or more in which five or more people live and are not members of one family.

What’s more, in order to obtain a licence, all rooms in an HMO must exceed a minimum size and can only sleep a certain number of people over 10 years old.

Since 2018, the rules change – which is said to ensure a better, safer standard of living for tenants – have been gradually rolled out across districts and boroughs.

As a result, the number of HMOs on the market has decreased with many landlords choosing to offload their buy-to-let stock instead of negotiating yet more hurdles due to legislative changes.

Where is the decline most prevalent?

Octane’s data shows that, on an annual basis, the number of HMOs in England fell by 3%, from 511,278 in 2019/2020 to 497,884 in 2020/21.

This overall national decline has been driven by the London market where the level of total HMOs has declined by 13% – the biggest reduction of all regions.

In the capital, 11 different boroughs have reported a drop, with the biggest coming in Ealing where HMOs have declined by 59%, followed closely by a 58% decline in Lambeth.

Redbridge has seen its numbers halved, and Barnet’s decline sits at -37%. The number of HMOs has also dropped considerably in Greenwich (-34%), Enfield (-30%), Wandsworth (-18%), Croydon (-13%), Hillingdon (-10%), Merton (-2%), and Tower Hamlets (-1%). 

It’s not all doom and gloom

Jonathan Samuels, Octane Capital’s chief executive officer, comments: “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.”

According to Samuels, 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,” he adds.

“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.”