One of the big growth areas in the rental market in recent years has been houses in multiple occupancy (HMOs). Landlords have been attracted to the fact that such properties can deliver far greater yields, since they let out each room within the property individually rather than the overall property.
A study earlier this year by Foundation Home Loans found that HMOs delivered the highest yields to buy-to-let investors, at an average of 6.8%.
This structure can also offer valuable protection from void periods, making HMOs and other more complex structures, like multi-unit freehold properties (MUFBs), even more appealing to investors.
Demand from tenants also appears to be on the rise. There was a time when HMOs had something of a poor reputation when it comes to quality, but the interest in high-end HMOs is on the rise. Research from Paragon Bank of HMO landlords revealed that almost half (48%) had seen demand for high-end HMOs rising, while a similar proportion (45%) had seen demand specifically from young professionals grow.
With such a healthy level of demand from tenants – particularly with homeownership becoming a more challenging proposition after the rate hikes seen over the last month or so – these more complex forms of buy-to-let look will continue to play an important role for investors.
Finding finance
It’s not just purchases though where landlords might look to raise funds against HMOs and MUFBs. We also have the incoming changes to rules around energy performance certificates, and the minimum ratings which properties will need to have in order to be rented out. Inevitably some investors will need to borrow against their existing assets in order to get the funds needed for the refurbishment works involved in raising the energy efficiency standards of their portfolio.
There is no question that these transactions are more complex than a regular buy-to-let purchase. There are far more elements involved than with a simple buy-to-let property that a landlord might let out to a regular family, which is why not all lenders will consider these deals.
Indeed, it’s become something of a cornerstone for specialist lenders who have been able to support landlords in purchasing these properties, when high street lenders might perhaps be a little more guarded.
The value of experts
The more complicated a buy-to-let case becomes, the more important it becomes to utilise the skills and expertise of specialists in the market.
Brokers know this only too well – while there may be some landlords who are comfortable arranging a buy-to-let deal on their own for a particularly vanilla case, the reality is that this approach would be a risky gamble when investing in something like an HMO.
That’s why those professional investors who add such properties to their portfolio put such faith in their brokers, recognising that the adviser’s expertise is invaluable in securing the right product.
That requirement for expertise doesn’t finish with the selection of a mortgage product though. The conveyancing process with such purchases, particularly when they are also being made through a limited company, can be significantly different from that of a vanilla buy-to-let transaction.
While there will be some ‘jack of all trade’ conveyancing firms who promise to be able to handle these cases, there is a danger that using one can lead to expensive delays as the firm tries to cover for their own lack of experience.
In some cases, complex cases will also mean incurring additional costs which may not be obvious from the outset, leaving clients to deal not only with the potential for delays but also a dent to the profitability of the case.
Partnering with specialists
This can be avoided by working with experts, tapping into their specialist knowledge. At eConveyancer we have focused on building a comprehensive panel of conveyancers for our brokers and clients to choose from, ensuring that they always have a legal partner with not only the capacity to handle the case but also the requisite experience.
Complex buy-to-let is unlikely to be a fad – if anything, investors are more likely to be drawn towards HMOs, MUFBs and the like in the years ahead. As a result it’s important for brokers to think carefully about which firms can support their clients in ensuring such purchases go through without a hitch or hidden cost.
Karen Rodrigues is director of sales at eConveyancer
