The UK rental market is without doubt a moveable feast, and as a lender active in the buy-to-let space, we are increasingly seeing these shifts as both landlord and tenant demand and needs change.
I think it’s fair to say that, while we have an incredibly robust private rental sector (PRS), there are pressures being brought to bear on it particularly since the ‘mini-Budget’ in terms of mortgage finance and cost, but in a wider sense in terms of property supply, the specific impact on rents, tenant requirements, and much more.
In that sense, landlords are having to cut their cloth accordingly, and while some might decide now is the time to divest their portfolios, others want to add to them, albeit by making sure they are securing the yield they need, and matching their property to what tenants want.
Interestingly, but perhaps not surprisingly, as a result of all that there has been a far greater focus on HMO properties recently.
And while it’s clearly the case that HMOs, for example, can still be described as a ‘specialist property type’ I think it would be somewhat naïve for us to think this part of the rental sector isn’t becoming more popular with landlords, as they react to a number of issues not least the growing demand for such properties.
This has been even more evident during the last 12-18 months as the cost-of-living increases, particularly when it comes to the cost of utility bills, have been a real focus for tenants. HMO properties are much more likely to ‘include bills’ and I’ve read of huge increases on the property portals of tenants searching for homes which have this stipulation.
Certainly, there does historically tend to be greater yields achievable with an HMO, but of course, there is greater cost with them, particularly if you are intending to convert an existing property into an HMO, and with a greater administrative burden, including licensing.
For some landlords, an HMO might seem like a ‘quick fix’ for a portfolio in need of a yield boost, but advisers should certainly warn their clients of thinking this way. Plus, it should not be assumed that turning every room in a property into a separate liveable space is either acceptable or going to be allowed, neither is having the barest of living standards within a property either.
Years ago, this might have been the focus for landlords catering, for example, to a student population, but it will be obvious to all that what tenants want in an HMO is far removed from those days, plus of course there are far more professionals requiring this type of property, and they also want their living accommodation to be far above what was deemed acceptable in the 1980s and 90s.
In that sense, the cost to landlords will be a significant factor in terms of what they have planned with an HMO purchase or indeed, moving an existing property to HMO status.
All this needs to be factored into a landlords’ decision-making process before they begin looking at their funding and finance options. In that sense, however, if they are serious about HMO investment and can go about it in the right way, then there are an increasing number of mortgage options available to them.
At Foundation, we certainly see the rise in demand here, and we are a specialist lender in this sector. Just recently we brought out a line of HMO specials, with very keen pricing – much more in line with our other fixed-rate buy-to-let offerings – and we anticipate they will prove popular with landlords who already have an HMO and are looking to refinance and/or those seeking to bring them into their portfolios.
As always, this is about putting in the necessary work for the landlord and adviser to make sure they know what they want, what they are planning to do, and how they plan to do it. Get this right, and there are strong finance options in order to get the most out of a specialist property type which is increasingly becoming part of the buy-to-let mainstream.
Grant Hendry is director of sales at Foundation Home Loans
