Landlords seeking to diversify in hunt for better yields

Landlords seeking to diversify in hunt for better yields

51% of brokers in the UK have been approached by landlords looking to diversify their portfolios within the last six months, according to new research from OneSavings Bank.

Of those brokers who had been approached by landlords about diversifying, 56% of enquiries were about diversifying into Houses with Multiple Occupants (HMOs). HMOs can generate a higher yield for landlords which will help to mitigate against the additional costs that they now face. Research by Mortgages for Business found that the average yield of a HMO could be 3.3% higher than a property with one tenancy agreement. However, changes to HMO regulations following a government consultation, due to be implemented from October, could introduce additional regulation in this area.

OneSavings Bank said landlords are also increasingly diversifying into commercial and semi-commercial properties in the wake of the recent PRA regulations and the changes to tax treatments for buy-to-let properties. The research found 14% of brokers said they had been approached by landlords wanting to increase the level of commercial property within their portfolio. In addition, 9% reported that landlords wanted to diversify into mixed-use properties.

Unlike residential buy-to-let property, landlords holding only commercial property will not be affected by the reforms to mortgage tax relief. In addition, commercial or mixed-use properties will not incur the same amount of stamp duty as purely residential buy-to-let properties would.

In addition, 6% of brokers said landlords were looking to diversify into student accommodation. Brokers also pointed to other options, such as holiday lets and serviced accommodation, being brought up by clients.

Recent regulatory and tax changes are thought to be the driving force behind a growing number of landlords moving into new property markets. In particular, reforms by the Prudential Regulation Authority (PRA) introduced stricter underwriting standards for portfolio landlords with four or more properties, whilst reforms to mortgage tax relief have reduced the amount of mortgage interest landlords could offset against rental income. These are in addition to the 3% stamp duty surcharge for second homes that was introduced in 2016.

Adrian Moloney, sales director at OneSavings Bank, said: “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.”

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