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Buy-to-Let Landlords Looking to Diversify Portfolios due to PRA Changes
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Landlords are looking to diversify their portfolios, meaning many are heading to brokers to discuss their options. According to research from OneSavings Bank, the specialist lending and retail savings group, 51% of the UK’s brokers have been approached over the last 6 months.
56% of the enquiries that brokers received were in regards to diversifying into Houses with Multiple Occupants (HMOs). With HMOs providing the potential for generating a higher yield, landlords are looking to such options as a way to help mitigate the additional costs of the buy-to-let industry.
Brokers Mortgages for Business have undertaken research that has revealed the average yield of a HMO could be 3.3% higher than a property with one tenancy agreement. However, a recent government consultation has brought about suggested changes to HMO regulations. Due to be implemented from October, they could introduce additional regulation in this area.
In the wake of recent changes by the Prudential Regulation Authority (PRA) to tax treatments for buy-to-let properties, landlords are also becoming more invested in the diversification into commercial and semi-commercial properties. Further findings from the research reveal 14% of brokers have said that they had been approached by landlords looking to increase the level of commercial property in their portfolio.
Furthermore, 9% have reported that landlords wanted to diversify into mixed-use properties. Unlike residential buy-to-let property, landlords with only commercial property will not be affected by these mortgage tax relief reforms. It is worth bearing in mind that commercial or mixed-use properties will not require the same amount of stamp duty as what would be due for a buy-to-let property.
Student accommodation is another option, with 6% of brokers saying landlords are considering this route. Some clients have also been said to have mentioned holiday lets and serviced accommodation as well.
Recent changes to tax could be considered the driving force behind an increase of landlords moving into new property markets. Reforms by the PRA have introduced stricter underwriting standards for portfolio landlords with four or more properties, whereas the amount of mortgage interest that landlords can offset against their rental income has been reduced by tax relief reforms. This is all on top of the 3% stamp duty surcharge for additional residential dwellings, brought into effect in 2016.
Adrian Moloney, Sales Director at OneSavings Bank, has commented: “Landlords are on the hunt for greater yields, and, in the face of regulatory and tax changes, diversifying into commercial property or more complex residential options such as HMOs can offer this. With the buy-to-let market becoming increasingly complex, there is an opportunity for informed brokers to support landlords seeking new niches. However, these brokers must in turn be supported by specialist lenders who can offer the flexible lending needed to finance the growth of these segments of the market.”
