The growing professionalism in BTL highlights the opportunities for proactive intermediaries

University students have not had it easy throughout the pandemic. Many courses were moved online for a sustained period which disrupted student life and, in turn, also affected many landlords with a heavy reliance on student lets.

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George Gee | Foundation Home Loans
8th October 2021
George Gee Foundation

In May 2021, university students were allowed to return to campus for face-to-face teaching and, as we start a new academic year, there are no longer restrictions on the approach to teaching and learning for higher education providers as a result of COVID-19.*

This represents great news for students and landlords alike as towns and cities with large student populations have long proved attractive investment opportunities, especially when it comes to HMOs. Of course, such property types are not limited to students. A growing number of professional people live in shared accommodation and this is especially prevalent in some of the larger, more expensive cities across the UK from a rental and purchase standpoint.

Generally speaking, we have seen an uplift in the quality of, and safety features within HMOs in recent years. Properties are now being better designed for communal living and providing comfortable, cost-effective solutions for tenants of all ages. This welcomed development has been driven by stronger regulatory measures, with work in progress. HMOs have also become increasingly attractive options for professional landlords who are looking for stronger yields and greater diversity across their portfolios.

The appeal of such yields was highlighted in the BVA BDRC Landlord Panel research for Q2 2021 which reported that HMO lettings continue to generate significantly higher average rental yields (6.8%) when compared to other property types. Bungalows were said to generate the lowest average rental yields at 5.5%.

When it comes to cost, landlords are typically spending a higher proportion of their rental income on running and maintaining HMO properties. On average, landlords with HMOs spend around 30% of their gross rental income running and maintaining them, compared to the 23% of income spent by those running and maintaining non-HMO properties. Estimated expenditure on HMOs and non-HMOs has increased year on year, by around 4%pts and 3%pts respectively.

We’ve seen the buy-to-let market moving steadily towards a stronger level of professionalism for some years now, and this has meant a growing number of landlords are now defined as ‘portfolio’ operators and have long-term plans in place to get the most out of their properties. Such landlords are incorporating a greater proportion of HMO, multi-unit block (MUB) and short-term let property types into these portfolios and this ongoing demand has meant that we, as a lender, are constantly evaluating our proposition to better support these demands. In light of such landlords taking a closer grip when it comes to managing upfront and ongoing costs, we’ve also introduced a variety of fee options to better manage expenditure depending upon their borrowing scenarios. For example, flat fees and fee-assisted deals.

With an increasing variety of highly competitive options now available across the specialist BTL market, more landlords are working closer than ever with advisers to assess how their portfolios are being financed and structured. This trend outlines the ongoing potential for proactive intermediaries who are looking to maximise the opportunities being generated by the ever-evolving BTL sector.

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