The specialist buy-to-let market is attracting new lenders, becoming more competitive and expanding its reach into areas that people may have previously only associated with commercial lending. Two good examples of this are Multi Unit Freehold Blocks (MUFBs) and HMOs. Historically these were complex property investments to secure lending on, considered as more a commercial investment than buy-to-let and with rates that reflected the small number of lenders in this sector.
Today, however, MUFBs and HMOs are well catered for amongst a growing number of specialist buy-to-let lenders, each with their own different niches and criteria. So, what are these investments, why are they popular with landlords and how can you help your clients to make the most of the opportunity?
An HMO is a building is a building of multiple occupants from two or more households where the occupants share one or more of the basic amenities (defined as a toilet, personal washing facilities and cooking facilities). Traditionally, an HMO might be a student house that is let to a number of different students, however it is becoming more common for young professionals to live in HMOs near to expensive city centres or medical staff to live in HMOs near hospitals.
A Multi-Unit Freehold Block (MUFB), on the other hand, is where a single property is split into flats and instead of having individual leaseholds, it’s held under a single freehold title. Each flat is self-contained with its own kitchen and bathroom facilities, although there will be shared hallways and often and a garden. Investors can increase the value still further by investing in the legal work to create an individual title for each of the residences.
The key difference to an MUFB, is that each unit is self-contained with its own private entrance and separate AST (Assured Shorthold Tenancy), as opposed to an HMO property with shared kitchen, bathroom and communal area.
Both HMOs and MUFBs offer investors the opportunity to earn higher yields than a more standard buy-to-let investment as landlords are increasingly looking to add these types of property to develop a more diverse portfolio. However, while the market is competitive, with many options, it can also be confusing as different lenders have their own criteria and many will structure loans on an individual basis. So, in this part of the market, experience and relationships are vital, which is why we would always recommend partnering with an expert, like Brightstar Financial.
Neil Taverner is a complex buy-to-let specialist consultant at Brightstar Financial
