Given the squeeze on buy-to-let landlords’ profits, landlords are looking for ways to off-set this. As well as investing through limited companies, which don’t have the same tax regime as individuals, landlords are looking to HMOs to increase their yields.
The tax and regulatory measures introduced over the past couple of years are persuading some landlords to change direction by entering the more lucrative HMO market.
According to buy-to-let mortgage provider, Precise Mortgages, reported by Mortgage Introducer, more than a fifth of their landlord mortgage applicants (21%) who looking to buy over the next year or so, are looking to add Houses of Multiple Occupation (HMOs) to their existing portfolios.
Precision says that HMOs “are proving to be an attractive proposition in a time of market uncertainty, with HMO landlords achieving the highest average rental yields at 6.3%.”
Alan Cleary managing director of Precise Mortgages, :
“In a time of market uncertainty, HMOs are an attractive option for professional landlords looking to maximise yields.
“As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets meaning the rental income is more secure if one tenant leaves a void.
“The expansion of the HMO sector underlines how experienced landlords are rebalancing their portfolios.
“It also demonstrates the opportunity for brokers to work with specialist lenders who have expertise across the widest product set to support clients who are reassessing their portfolios.”
Precise Mortgages extended its HMO criteria back in 2016 to accept properties with up to eight bedrooms – an increase from the six accepted when the products were initially launched. It also launched a Limited Company product as well as improving its criteria for buy to let landlords in retirement.
Mortgage brokers are able to submit HMO and Limited Company buy-to-let cases through authorised packagers, as well as direct with the lender.
According to Precise:
- Average yields for all property types dropped 0.3% in Q2 and are now at their lowest level since 2010.
- The most popular type of property to buy are terraced houses, with half of landlords planning to buy a terraced property.
- However, 40% of landlords also plan to sell terraced houses in the year ahead.
- By contrast, just 8% of landlords holding HMOs in their portfolios plan to sell them.
- Blocks of flats are also set for growth, with 8% of landlords planning to buy compared with just 5% planning to divest.
Alan Cleary added:
“To help landlords explore new opportunities, we’ve extended our top slicing feature across our entire buy-to-let range.
“It means landlords can now use their surplus HMO income for future property purchases to expand their portfolios.
“We also offer refurbishment buy-to-let for works being completed under permitted development rights, provided there are no structural alterations or changes to the footprint of the property.
“This is a really exciting development as it allows landlords to change the use of a property from a C3 dwelling house to a C4 HMO of up to six bedrooms.”