We live in turbulent economic times. With rising interest rates and soaring inflation, the cost-of-living crisis has taken centre stage for many people when it comes to priorities.
Fears over financial security combined with recent changes in legislation and upcoming energy efficiency requirements has certainly presented landlords with a number of challenges.
But although the outlook may be uncertain, there are still many opportunities for landlords. The demand for rental properties is still likely to rise as buyers wait until borrowing becomes affordable.
And for those in a position to invest in the buy-to-let sector, they may do well to consider the benefits of houses in multiple occupation (HMOs). Offering tenants affordable, flexible, sociable accommodation, a good quality HMO may be an appealing choice for many during this challenging economic period.
However, while HMOs can attract a much higher rental yield and capital growth compared to traditional buy-to-lets, as a specialist market they come with extra costs and considerations.
What should I do to ensure my HMO is a success?
To achieve long-term success, there are a number of areas to get right from the start:
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Follow the regulations
Every HMO property must be fit for purpose and comply with certain regulations regarding bedroom size, a shared kitchen, bathroom facilities and communal areas.
Requirements vary by location so it’s wise to check with the local council who can also advise on planning permissions and construction types.
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Know about licensing
Generally, a license is required for HMO properties with five or more people, sharing facilities from two or more separate households.
Again, it’s important to check with your local authority before proceeding, as requirements may vary and you don’t want to incur an unnecessary fine.
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Plan the finance
When it comes to loan finance, buy-to-let HMO mortgages are typically only available from specialist lenders and accessed through independent mortgage brokers such as Vincent Burch Mortgage Services.
As HMOs have grown in popularity, so too has competition among lenders, with many broadening their criteria, for example, to include first-time landlords and a wider age range of applicants.
With rates continuing to increase, it’s more important than ever to talk to a broker who can compare the HMO mortgage finance options available.
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Tax planning
With regards to tax implications, we recommend speaking to a professional accountant or tax adviser who can discuss the most tax-efficient options for your circumstances and suggest the appropriate business structure for your investment.
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Clarify costs
It’s important to consider the impact of costs such as maintenance, from getting up-to-date Gas Safety and Electrical & Fire Safety checks to specialist insurance and professional health and safety inspections. Property management is another cost and if you’re planning to do this yourself, think about the impact on your time and availability.
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Research locations
A perfect HMO property in the wrong location will never work. Always establish the likely demand, the type of customer you’re looking to attract and the local competition before taking the plunge.
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Find your HMO mortgage
At this particularly challenging economic time an independent, whole-of-market broker will be able to help. They have access to specialist HMO mortgage lenders and will ensure the process is a hassle-free one.
Vincent Burch is mortgage director at Vincent Burch Mortgage Services
