An increasing number of buy-to-let landlords are looking to diversify their portfolios by investing in Houses with Multiple Occupants (HMOs), commercial and mixed-use property to boost returns, according to OneSavings Bank.
Research by the specialist lending and retail savings group shows that over half - 51% - of the UK’s brokers have been approached by landlords looking to diversify their portfolios within the last six months.
Some 56% of the landlords surveyed wanted to diversify into HMOs, 14% wanted to diversify into commercial property, and 9% into mixed use, in order to avoid or mitigate recent tax hikes in the buy-to-let sector.
Recent research by Mortgages for Business found that the average yield of a HMO, for instance, could be 3.3% higher than a property with one tenancy agreement.
In addition, 6% of brokers said landlords were looking to diversify into student accommodation.
Brokers also pointed to other options, such as holiday lets and serviced accommodation, being brought up by clients.
Recent regulatory and tax changes are thought to be the driving force behind a growing number of landlords moving into new property markets.
In particular, reforms by the Prudential Regulation Authority (PRA) introduced stricter underwriting standards for portfolio landlords with four or more properties, whilst the phasing out of mortgage tax relief have reduced the amount of mortgage interest landlords could offset against rental income.
Adrian Moloney, sales director at OneSavings Bank, said: “Landlords are on the hunt for greater yields, and, in the face of regulatory and tax changes, diversifying into commercial property or more complex residential options such as HMOs can offer this.
“With the buy-to-let market becoming increasingly complex, there is an opportunity for informed brokers to support landlords seeking new niches. However, these brokers must in turn be supported by specialist lenders who can offer the flexible lending needed to finance the growth of these segments of the market.”
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