In recent years, Houses in Multiple Occupation (HMOs) have gained popularity among property investors aiming to maximise rental yields, and the ability to convert properties into HMOs under permitted development rights (PDR) has made this option even more attractive.
Usually, property owners can convert single-family homes (Class C3) into small HMOs (Class C4) without needing planning permission, thanks to permitted development rights under the Town and Country Planning (General Permitted Development) Order 1995. This streamlined process has facilitated the growth of the HMO market, allowing investors to quickly adapt properties to meet housing demands. However, the ease of these conversions has led to high concentrations of HMOs in certain areas, prompting regulatory responses by some local councils. The introduction of Article 4 Directions by these councils has added new layers of complexity to the planning process, requiring investors to approach their projects with greater caution.
Article 4 of the Town and Country Planning (General Permitted Development) Order allows local councils to remove certain PDR in specific areas. This means that even for changes that would normally be allowed without planning approval, property owners must now apply for planning permission. For investors focused on HMO conversions, this has significant implications, particularly as local authorities across the country are increasingly using Article 4 to limit the number of HMO developments within certain areas.
There are several reasons why councils have decided to implement Article 4 restrictions. First, there are growing concerns about overcrowding in some areas, where the density of HMOs has put pressure on local infrastructure such as waste collection, parking, and public services. Furthermore, a high concentration of HMOs can alter the character of a neighbourhood, resulting in a transient population that may not contribute to long-term community building. Property prices can also be affected, with fewer family homes available for sale, potentially driving up costs for local buyers. By introducing Article 4, councils hope to manage these impacts more effectively and retain control over how and where HMOs are developed.
For property investors, however, these restrictions create new hurdles. When Article 4 is in place, planning permission becomes mandatory for all HMO conversions, regardless of whether the changes would have previously been allowed under permitted development rights. This adds both time and cost to the investment process, as investors must now navigate the planning system, potentially delaying the start of their projects. Additionally, there is no guarantee that planning permission will be granted, adding an element of uncertainty to any proposed conversion.
Despite these challenges, there are several strategies investors can use to mitigate the impact of Article 4. For example, if an investor has identified a property in an Article 4 area but is still waiting for planning permission, a bridging loan can provide short-term funding to secure the property and cover costs during this interim period. This allows investors to act quickly in a competitive market without having to delay their purchase until planning is approved.
Another potential approach for investors is to seek out opportunities outside of Article 4 areas. While many councils have applied these restrictions, there are still plenty of locations where permitted development rights remain intact, allowing for faster and more straightforward HMO conversions. Even within councils that have invoked Article 4, the restrictions may only apply to certain areas, meaning there could still be untapped opportunities nearby. However, it’s important to remember that Article 4 boundaries can change over time, so investors should stay informed about local authority plans to avoid surprises in the future.
Article 4 Directions may have given HMO investors more to consider, but there continue to be plenty of opportunities to deliver new stock into this market where demand is growing. Bridging finance, whether to finance the period when a planning application has been submitted in an Article 4 area, or to fund the conversion work, will be an important tool for those investors. This means that it needs to be an important tool in your toolbox.
Anna Lewis, Commercial Director at Castle Trust Bank