If you’re thinking about investing in a property to rent out as a house in multiple occupation (HMO), one thing you need to be aware of is an Article 4 direction. This can affect what you intend to do with the property. Here, we’ll explain what an Article 4 direction is and the impact it can have.
What is an Article 4 direction?
Property owners have permitted development rights under the General Permitted Development Order (GPDO). These allow for changes of use or some development works to be carried out on properties without applying for planning permission. For example, you may wish to add an extension to your home in Bexley. Or you may wish to change the use of your home to a guest house. Article 4 directions give local councils the authority to withdraw permitted development rights for certain properties or areas.
This can affect you, therefore, if you wish to convert a single dwelling (class C3) into a small HMO (class C4). A small HMO is a property that’s shared by three to six unrelated tenants. Usually, you only need planning permission when changing the use of a single dwelling to a large HMO. This houses more than six unrelated tenants. If an Article 4 direction is in place, however, you need to apply for planning permission to change the class use from C3 to C4.
Why are Article 4 directions used?
Article 4 direction legislation allows local councils to control the volume of HMOs in their area. This avoids high concentrations of shared housing in specific locations. In areas with dense levels of HMOs, communities can be negatively affected. For example, by having an increased crime rate, higher levels of noise and parking issues. Article 4 directions can also limit the impact of development in conservation areas.
The impact of Article 4 directions
Article 4 directions have both positive and negative impacts on areas, different groups of people and the housing market.
Impact on local areas and residents
Having an Article 4 direction in place can ensure that an area benefits from more diverse types of housing rather than a concentration of HMOs. This can help towards having a more cohesive community. For example, lots of young sharers can increase the noise levels and cause disturbances for neighbours. House sharers usually have their own vehicles. This takes up more parking spaces outside a property and in the local area. As mentioned above, crime rates tend to increase too.
Applications for planning permission to change the use of a C3 property to a C4 are only granted if the accommodation meets a high standard. This improves the quality of HMO properties within the local area. Some areas also rely on certain types of residents, such as young professionals and students, to boost the local economy. They provide extra business for the local pubs, restaurants and shops, for example. Large employers, such as hospitals and universities, also benefit from small HMOs existing in the local area.
Impact on the housing market
For investors, the risk of being denied planning permission to change the use of a class C3 property to a C4 makes buying C3 properties an unattractive option. Instead, in areas covered by an Article 4 direction, investors tend to buy properties that already fall under the C4 category. That way, they’re certain to benefit from a good rental opportunity.
As the demand for C4 properties is higher, the prices these properties command are higher than C3 properties. And with the decline of buyers for C3 properties, any increase in the values for those properties slows in comparison with C4 properties. This means that the value of a homeowner’s C3 property in Pimlico could be considerably less than a similar neighbouring property that’s already classed as a small HMO.
Impact on landlords
Landlords wishing to buy an investment property that has a class C3 use with the intention of changing it to a small HMO in an area with an Article 4 direction need to be aware that they have to seek planning permission to do this. They risk this application being denied and, therefore, may lose out on a more lucrative rental opportunity. To be approved for planning permission, one condition is that the property must be of a high standard. This can considerably increase a landlord’s expenses if the property requires a lot of modernisation.
Landlords who already own a small HMO in an area where an Article 4 direction is then applied can benefit from this. As the demand for their type of property increases, so too does their property’s value. Also, as there is less competition in the local area for small HMOs, they can charge higher rents.
Impact on tenants
HMOs are popular with individuals who can’t afford to rent a property on their own. However, a reduced supply of small HMO properties in some areas that have a high demand for them will push the rental prices up. This will make the rent too high for many renters. In turn, this will force them to look for more affordable housing outside of the area. For students who need to be near their university or staff employed by a local hospital, for example, having to live further away will increase the cost and time of their daily commute.
One good aspect of an Article 4 direction being in place from a tenant’s point of view is that a small HMO will provide them with a good living standard. For planning permission to be granted to change a single dwelling’s use to a small HMO, the property owner has to show that a high standard has been reached for the accommodation.
Get expert advice on HMOs and Article 4 directions
Give us a call on 01322 907 000 if you’re interested in buying a property as an HMO investment. Our mortgage brokers can give you Article 4 direction guidance and answer any queries you may have. We can arrange a mortgage for you if you’re buying a single dwelling. Alternatively, we can arrange an HMO mortgage if you prefer to buy an existing HMO property. As well as helping with your mortgage needs, we offer other services. For example, we can ensure that you have the right insurance and mortgage protection in place too.