Huy Le, a Buy-to-Let Finance specialist at Knight Frank Finance, shares his top tips for navigating the buy-to-let market today.
The last 18 months have been challenging for the buy-to-let sector. Regulation has tightened, taxes have increased and interest rates have been on the rise.
But there is some good news for landlords ahead, with signs that the mortgage market is softening. At the same time, a number of opportunities and considerations have started to surface that landlords should be aware of. Read on for Huy’s top things to watch in today’s buy-to-let market.
1) Market is softening but remains complex
The high interest rates seen over the last year and a half have resulted in higher rental calculations (known as income coverage ratios) for the sector. This has meant that if landlords were to remortgage they would be able to borrow less pound for pound. But things are changing, the market is softening, and these high rates are starting to come down.
Crucially, however, the current lending environment remains complex. Landlords would struggle to get a good deal by simply going direct to a bank for their borrowing needs, with high street lenders requiring detailed information around the property’s rental calculations, lease situation (which can be complex for Houses of Multiple Occupation or ‘HMOs’), ground rents, service charges and more. All these elements impact how much landlords can borrow, so specialist mortgage advisors will play a key role here in navigating these complexities to ensure landlords are securing the very best deals available to them.
2) HMO licencing changes
Some landlords are unaware that the rules around the licencing of HMOs changed in June 2023 with smaller HMOs (which includes a property with three or four occupants) now requiring a licence before you can rent them out. So, for example, where you had a two-bed flat and one of the two occupants renting out a room moved their partner in, the property would now require a licence. This is another layer of complexity where landlords would benefit from speaking with a specialist advisor.
3) Short term let growth provides flexibility
An increasing number of lenders are becoming more flexible with how they lend to the sector. Hybrid products that include a mixture of short-term lets, holiday lets, or even HMO letting opportunities are now available for landlords depending on their circumstances. This is a really positive development for the sector since it offers landlords greater flexibility during certain months in the year. For example, if a landlord had a flat in Wimbeldon during the tennis season but didn’t want the responsibility of letting it out for the full year, a short-term let could be very lucrative.
4) High yields to be had from property improvements
Some of the most profitable investments in buy-to-let today are for landlords willing to transform a standard house into an HMO. For example, if you were to buy a four-bed house, do some works on it to create a six-bed HMO, you could let it out to professionals resulting in significant profit.
But there are a number of regulations, such as planning requirements and the aforementioned licencing changes that would need to be navigated so speaking to an advisor would be key for landlords looking to go down this route.
If you’d like to explore whether any of these opportunities apply to you, speak to our specialist buy-to-let broker, Huy Le, who can help you identify the best financial approach for your circumstances.