Five reasons for your client to consider including an HMO property in their portfolio

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The recent announcement from the government concerning the stamp duty cut will no doubt be welcomed by landlords; especially those seeking to take advantage of this to expand or diversify their portfolio.

Those looking for such diversification may consider investing in an HMO which means brokers could face more queries about this property type.

Top tip: As part of the initial discussion, it’s worth asking your client whether they have checked if the property is in an Article 4 area and does it have the relevant planning permissions in place? InterBay Commercial has the expertise and criteria to support HMO cases up to 20 bedrooms.

To assist with HMO conversations, their expert team have put together five reasons why your landlord client should consider adding an HMO to their portfolio.

1. Higher Yields

The well-publicised lure of HMOs is that rental yields are often far higher than for a typical rental property. The latest BVA BDRC research suggests that landlords letting HMOs continue to generate significantly higher average rental yields.

We should remember though that costs are also likely to be higher than a standard rental property. An HMO licence can range considerably from under £100 to over £1,000 depending on where you live. Work may be needed on the property to ensure that it’s compliant with regulation.

Day to day, the high turnover of tenants and more intensive use will also mean higher costs, so your landlord clients should take this into account. However, on balance, particularly if costs can be kept reasonably low, yields can be excellent.

2. Rental voids have less impact

Letting each room individually, although it involves more work vetting individual tenants when they move in, pays off when it comes to them moving out. When the tenant moves out of a single let property, the whole property is empty. With a multi-let property, the remaining rooms continue to be tenanted.

3. Less exposure to arrears

The same ‘eggs in multiple baskets’ logic applies to arrears. For example, having several sources of income from multiple tenants paying rent, as opposed to a single tenant renting an entire property could mean a landlord is less exposed. In the current economic climate, this reassurance might sit well with some landlords.

4. Tax advantages

One difference between HMOs and single-let properties is the potential to claim income tax relief on qualifying items. In properties considered as multiple dwellings this applies to the costs associated within the communal areas such as stairways, which are treated as an expense of the rental business. Allowable expenses for landlords is a relatively grey area when it comes to claiming tax deductions so it’s always best your client consults the advice of a tax advice professional.

5. There is a need for flexible, affordable housing

Keeping costs to a minimum particularly for students, young professionals, mobile workers and single people is a priority. The private rented sector as a whole has doubled since 2000, and now accounts for one fifth of all homes in Great Britain. HMOs offer a far cheaper alternative to renting an entire property by enabling tenants to split household bills, while giving tenants the privacy of their own bedroom.

Why you should InterBay it

If your landlords are considering an HMO property, InterBay Commercial’s team of experts could provide the solution. With extensive knowledge on helping clients with challenging cases and flexible criteria to support HMOs up to 20 bedrooms, the lender could be the answer you need.

Speak with your senior business development manager or visit www.interbay.co.uk for more information on the lender’s current product offering. For intermediaries only.  

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