Increasing landlord demand for HMOs is no surprise

Originally published by Best Advice

Where is the buy-to-let market heading right now? How does the PRS look? Well, it’s certainly obvious that different answers to this question, and differing opinions, are held by many on this.

Indeed, a recent set of data from Rightmove generated differing headlines based on a different interpretation of one set of results. That being either there is a mass exodus of landlords from the PR or there isn’t? ‘Is the PRS in crisis?’ being another recent take on recent data and analysis.

As you might already know, the answer probably lies somewhere in the middle of these extremes.

For example, the Rightmove data suggests there has been growth in the number of former rental properties which are now up for sale. It says 18% of properties currently available to buy were previously rental properties, compared to 8% back in 2010.

Of course 14 years ago is a very long time, and I think we’d all agree the pressures and responsibilities placed upon landlords over the course of that period have been significantly ramped up.

We have essentially moved from a market which was dominated by ‘amateur landlords’ to a much more professionalised market, and when you factor in interest rate rises, the cut to mortgage interest tax relief, stamp duty increases, and all the other increases in costs for landlords, then it’s unsurprising to see some landlords of one/two properties deciding it’s no longer a profitable investment for them.

However, are we seeing a ‘mass exodus’? I don’t think so, and neither does Rightmove, who quite rightly point out, that just because a property is up for sale which used to be a rental, doesn’t mean the property is going to leave the PRS.

Quite the opposite. The likelihood is that it will be bought by another landlord and it will remain ‘in circulation’ so to speak, although of course many of the government policies we’ve witnessed over the last 14 years have been explicitly designed to move properties out of the PRS and into the hands of first-time buyers.

That, you might suggest, has been a terrible policy to pursue at a time when demand for rental properties has grown significantly, and where there has been a wider housing supply shortage, coupled with a period where first-time buyers have struggled to get on the ladder due to a combination of deposit requirements, less appetite to lend in this space, fewer high LTV mortgages available – I could go on.

Now, of course, we await to see what the new Labour government might do in this space. There’s no question it will be ‘tenant friendly’ in its policies, but will it also recognise the wider UK housing strategy required is one in which the PRS is able to grow, rather than one that curtails further the number of properties available?

Will it follow the policies of the last 14 years and attempt to steer more landlords out of the sector, perhaps by upping CGT rates on the sale of properties, which could well be prompting existing landlords to be considering their options at the moment? Might it sanction rental controls which would ultimately extricate more PRS properties from the market. Let’s certainly hope not.

What we do know is that landlords are aware of the strong tenant demand that still does exist, and they’re also acutely aware they need to secure profitable properties in order to meet those rising costs we have talked about. Although we have seen some good news on mortgage product rates in recent weeks, and I would hope this continues throughout this year and next.

One method that is increasingly being used by landlords is to focus on those higher-yielding properties, or indeed, converting existing properties into higher-yielding ones.

Hence, we have seen a growth in demand for HMOs, again with landlords seeking to add these properties to their portfolio, or determining whether they can move properties which have previously not been HMOs into them.

Of course, there is a great deal more to consider in the HMO space, not least in terms of licensing, but also in terms of the set-up of properties themselves, for example, with fire safety, waste disposal and the like.

In my view, if you as an adviser are not already, then it would certainly be worth getting up to speed with these different requirements, particularly if you have landlords who are seeking to move into the HMO space for the first time. Plus, of course, and Fleet is no different here, most buy-to-let lenders have separate product ranges specifically for HMOs or multi-unit blocks, different criteria requirements, etc, and again it pays to be up to date on these offerings.

We’ve actually just launched new products in our HMO range – both fixed- and zero-fee options – plus cut rates, as we recognise the growing interest in purchasing or refinancing these products from landlord borrowers, and we want to ensure they have a wider range of mortgage options available to them.

Overall, there’s no doubting that the PRS, the buy-to-let market, and landlord borrowers’ engagement with both is shifting. In a very true way, it has too. We are certainly not at a ‘mass exodus’ point, but it would be helpful if we did not have any future measures aimed at encouraging this to happen.

Landlords want to be active in this space, they recognise the positives of it, they want to provide quality accommodation to tenants, and they’re seeking to do this in the best way they can. We’re here to help them, perhaps the government might do the same?

Steve Cox is chief commercial officer at Fleet Mortgages