More landlords investing in HMOs

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HMOs:

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.�

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