What is Article 4?
Article 4 direction means the local authority remove the rights for change of use for property types within a designated area. Therefore in this case no one can setup or start a HMO without prior council approval.
A difficult market for anyone to get into! As in the majority of scenarios new planning applications are often declined. Meaning only existing planning applications with existing use are the property types that would need to be purchased. These properties however demand a very high premium in asking price.
An example is a Montpelier Road with planning permission as a 6 bed HMO in Lenton, NG7 located just 5 minutes walk from a University campus could be valued at £430,000 (see below). This is valued as a property Investment property and given a yield, therefore sale is based on achieving roughly between 8% -11% return per year on the purchase cost.
This means a property like this bringing in £35,000 Per Annum can be valued in excess of £430,000. The exact same property next door for example which is used as a residential C3 Dwelling could be valued at £200,000. Less than half the value. Due to the difficulty in entering this market becuase of Article 4 it has now driven the prices higher and higher.
This Article 4 Direction is not only in Nottingham but other cities that are leading in the uK with infrastructure and universities. Such as: Leicester, Loughborough, Doncaster, Birmingham.
Therefore to setup a HMO in non Article 4 locations leads to the problems such as saturation of the market, what types of tenants you may get and also not having the commercial HMO Investment Yield Valuation post setting up the hMO. It would only warrant a bricks and mortar value.
Article 4 areas continue to Drive premium prices for multiple use dwellings that generate £35k Per Annum plus.
How do I know if my Local Authority has Article 4? Head over to your local authorities website and look for article 4 directions or planning permissions. Their will be documents availble to read and download that will share further information.
How do I know if the property i'm buying has planning permission? You can check in advance via the local authorities planning portal. Head over to their for example Nottinghams is http://publicaccess.nottinghamcity.gov.uk/online-applications/ then search the postcode of the property. If the subject address does not appear then planning permission for the change of use is not in place.
What do I do if there is no planning? Before you purchase the property you can ask the owner/agent if a certificate of lawfulness can be applied for with the council. You can then discuss with the council and prove that a legacy use as always existed as a HMO before the Article 4 Direction came into existence. It is vital to do this prior to completion as once you buy the property even if a HMO license is in place the change of use to C4 classification is still not defined as lawful.
We have examples of increasing from 3 bed to 5 bed / 4 bed to 6 bed / 5 bed to 7 Bed (Sui Generis)
How did we purchase a HMO £50k below list price that was on market?
Below are some of the reasons:
1. Right time
2. Ready to buy
3. Proof of how we can buy
4. Existing relationship
5. Knowledgable with the type of house we were buying to further drive a discount during legals
6. Understanding Article 4
7. Proof that planning isn't simple to obtain
Interested in our full turnkey solution just like this client was? Contact us or attend one of our April 2020 sessions in London, Manchester, Nottingham or Birmingham
Interested in knowing how to obtain a great Article 4 HMO deal for 6 Beds around £220k revalued at £420k plus needing refurb drop us a message.
HMO Comparisons in the Midlands
Here are a few current Article 4 HMO's sold on the open market across The Midlands
Montpelier Road, Nottingham - £430,000
Radford Boulevard, Nottingham - £425,000
Arnesby Road, Nottingham - £450,000
Our team holds a vast amount of experience across all types of Investments: Single Lets, HMO's, New Builds, Conversions, Extensions, Flats. Land, Serviced Accommodation
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Author - Romero Howe 2020