Opportunities remain for savvy buy to let landlords if they’re willing to take a longer term view on their investment, says Huy Le, Buy-to-Let Finance specialist at Knight Frank Finance.
There was little in the way of change in the chancellor’s Spring Budget for buy to let landlords this March, and markets are anticipating that the Bank of England will hold the base rate at 5.25% in this week's announcement.
While this will be disappointing for some landlords, whose profitability has been stretched over recent years, there are opportunities in the market to be seized.
Savvy investors should look beyond today’s interest rates to focus on returns further down the line, says Knight Frank Finance buy-to-let expert Huy Le.
“With little change in mortgage rates, demand for stock is currently quite low. So if you’re a landlord looking for investment opportunities, now is a good time to start looking for potential purchases. Particularly when you factor in finance solutions like bridging finance, which can be more costly in the short term but will reap benefits down the line,” begins Huy.
“I have three clients at the moment who are all applying for bridging finance to buy terraced houses with a view to convert and upgrade them into house in multiple occupation (HMO). Once they obtain their license and planning consents, they will be able to change the property into a commercially yielding product which raises the value.”
For example, one client bought a 6-bed terraced house via a bridging loan at a higher rate of 0.9% per month in Watford for £650,000. They invested funds to upgrade the property and obtain licensing for a 6-bed HMO. The rental potential in the area was £1,000 per room, which totalled £6,000 a month and £72,000 a year. Knight Frank Finance was then able to secure a commercial valuation on the property’s rental yield with one lender, which resulted in a £900,000 valuation.
Huy added that the client was then able to remortgage the property at the higher value with a traditional buy to let mortgage to pay off the bridging loan at the same time as being left with a HMO property that achieves £6,000 a month in rent.
“So, the property started at a bricks and mortar property valuation of £650,000. It was then turned into a commercial HMO property and saw a significant uplift.”
Elsewhere in the market a decision by the government to abolish a tax relief for holiday lets will put them on a more level playing field with buy to let landlords, signalling a positive move for the sector.
From April 2025, the furnished holiday lettings tax regime will be scrapped. This currently gives holiday let landlords a tax advantage over landlords who let out residential properties to longer-term tenants.
Huy added: “While this hasn’t been ratified yet, this is something the government has proposed so landlords should be keeping an eye on how this develops.”
If you are looking to explore which products and services would work best for you, speak to Huy Le, who will be able to help you identify the best financial approach for your circumstances.