English councils refused 1,203 HMO planning applications in 2025, up from 590 in 2021, according to analysis of planning data across 144 local authorities by Property118. The approval rate fell from 68.1 per cent to 65.2 per cent over the same period. Total applications decided almost doubled, rising from 1,848 to 3,454.
The numbers matter less than the transactional consequence. Portfolio landlords and conveyancers now face a due diligence problem: a property may hold an HMO licence, appear on the council tax register as multiple occupation, and generate market rents, yet still lack demonstrable lawful planning use when tested at sale or refinance.
Why licensing does not equal planning permission
An HMO licence confirms a property meets safety and management standards. It does not confirm the use is lawful in planning terms. In areas without an Article 4 Direction, converting a C3 dwelling to a small C4 HMO (three to six unrelated occupiers) typically falls under permitted development rights and requires no planning application.
Once an Article 4 Direction takes effect, that right disappears. Any conversion from that date requires full planning permission, assessed against local HMO policies that may include concentration limits, proximity thresholds or amenity tests. Properties converted before the Article 4 Direction may retain lawful C4 use, but only if the owner can evidence the date of conversion and continuous use since.
The problem surfaces when a buyer's solicitor or mortgage valuer asks for proof. Council tax banding, licence applications and historic tenancy agreements do not constitute planning evidence. A landlord who cannot demonstrate lawful use faces three options: apply retrospectively for planning permission and risk refusal; sell at a discount to a cash buyer willing to accept the risk; or withdraw from the market entirely.
Article 4 Directions are widening, not targeting
Article 4 Directions were designed to manage localised problems such as excessive HMO concentration in specific streets. Recent deployment has been broader. The Property118 analysis does not quantify how many councils now apply Article 4 Directions borough-wide, but anecdotal evidence from conveyancing enquiries suggests the practice is spreading.
The commercial effect is that landlords can no longer assume permitted development rights exist in most areas. Pre-contract due diligence must now include checking whether an Article 4 Direction is in force, whether one is proposed, and what local HMO policies require. That due diligence cannot wait until exchange. It determines whether the acquisition is viable at the offer price.
Properties with clean planning records and continuous use evidence may command a scarcity premium in restricted areas. Those without face illiquidity. Lenders advancing against HMO portfolios may require retrospective planning reports on properties where lawful use cannot be demonstrated, particularly at refinance or portfolio restructure.
Valuation and financing pressure points
The approval rate decline from 68.1 per cent to 65.2 per cent is modest in percentage terms but represents 613 additional refusals. For landlords seeking to expand or reposition portfolios, that tightening restricts supply and raises acquisition costs for compliant stock.
The valuation divergence is more acute for existing assets. An HMO with evidenced lawful use predating an Article 4 Direction may be one of a finite number of properties in the area capable of lawful operation. An HMO with assumed but unproven lawful use becomes a problem asset the moment a buyer or lender questions its status.
Conveyancers report increased enquiries on planning status at pre-contract stage, though the frequency of transactions failing due to unresolved planning issues remains unquantified. Lenders have not yet published revised criteria for HMO lending in Article 4 areas, but the logic is clear: a property that cannot evidence lawful use presents credit risk if it proves unsaleable or subject to enforcement.
What landlords should establish before acquisition
Anyone acquiring an HMO in an Article 4 area should verify the following before agreeing a price:
- Whether an Article 4 Direction is in force and, if so, from what date
- The property's planning use class at the date the Article 4 Direction took effect
- Whether planning permission for C4 use was granted, and if so, subject to what conditions
- Evidence of continuous C4 use since any conversion, including tenancy records, licensing applications and council tax correspondence
- The council's current HMO policies, including any concentration limits or amenity tests
- Whether any enforcement notices or breach of condition notices have been served
This is not completion due diligence. It is purchase appraisal. A property marketed as an HMO that cannot evidence lawful use is not worth HMO market value.
Enforcement risk and portfolio exposure
Councils have limited resources for planning enforcement and tend to act on complaint rather than proactively. That does not eliminate the risk. A property operating as an HMO without planning permission may face enforcement action at any time, with no limitation period for unauthorised use. The owner may be required to cease HMO use, return the property to C3, or apply retrospectively for permission with no guarantee of approval.
Portfolio landlords holding multiple HMOs acquired over several years may discover at refinance or disposal that not all properties can evidence lawful use. Lenders reviewing security may require remediation or portfolio restructure. Buyers may demand indemnity insurance, price reductions or withdrawal.
Property managers holding HMO portfolios on behalf of clients should verify that planning status has been confirmed for each property. The licence does not protect against planning enforcement.