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SPECIALIST PROPERTIES & HMO'S - A GROWING MARKET

Written by Richard Tugwell, Director of Mortgage Distribution at Vida

What makes a specialist property?

Now more than ever, there is a property shortage in both the residential and buy to let market. Despite the challenging environment of 2020, the BTL market has remained resilient and, although there was a slowdown last year, a modest recovery is expected in 2021 with estimated overall BTL lending to be in the region of £40bn.

With portfolio landlords still keen to expand their catalogue of properties, they are having to also expand their horizons to specialist properties available on the market. But what makes a property a specialist property?

Vida classes a specialist property as an HMO/MUB, Student Let, high-rise flats, ex-Local Authority flats, flats above a commercial premises, for example a retail unit, office space, dry cleaner, nail parlour, restaurant, hairdresser.  Some lenders extend this definition to include new builds, holiday lets, self-builds and properties of a particular method of construction.

From the 1st April 2020, all BTL properties need to have a minimum EPC rating of ‘E’ or above, otherwise it is not possible to let a domestic property.  Depending on the property, this requirement could incur landlords huge fees in getting properties which fall below this rating up to standard, and naturally this causes any properties which fall below this rating to become a ‘specialist’ property. (Vida requires all BTL properties to have an EPC rating of E or above, unless a valid exemption has been registered).

HMOs

Houses of multiple occupation (HMO’s) are fast becoming a popular choice for portfolio landlords. HMO properties can produce a high yield compared to traditional, one-family rentals, and can be in high demand in particular areas of the UK. The average house price was lowest in the North East (£144,032) and highest in London (£491,687), so there’s still opportunities to be had with higher yields in the North and in popular University cities as student accommodation.

However, HMOs are considered specialist due to the nature of these buildings. Specialist Lenders (such as Vida) require landlords to have at least 1 years’ landlord experience before taking on an HMO. And there is usually a restriction on the number of rooms/bedrooms an HMO can have (maximum 8 bedrooms with Vida).

In addition, landlords with HMO properties are subject to mandatory licencing if they have five or more tenants living in the property, but this can vary depending on the local authority. The Tenant Fees Act has introduced a further restraint, banning most letting fees and capping tenancy deposits aid by tenants in the private rented sector in England.

Despite the specialist nature of HMOs, the demand for mortgages for these properties remains high and HMOs are continuing to rise in value, remaining an ideal opportunity for portfolio landlords and investors. According to Twenty7Tec, the average loan size for HMOs have increased year to date by 4% (2020 – £267k, 2021 – £279k).

As housing stock remains a shortage across the UK, there is an opportunity for landlords to consider purchasing specialist properties for the purposes of letting. Advisers should become familiar with what specialist lenders requirements are that will help ensure the right customer outcome for the landlord. This market continues to grow and as house prices continue to rise, the tenant demand will remain; leading to continuing high yields and more BTL landlords looking to make an HMO investment.

 

CONTACT 01277 508959 FOR FURTHER INFORMATION OR TO DISCUSS AN ENQUIRY

Subject to status.  Criteria available at the time of publishing and subject to change or withdrawal at any time.

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