Buy to Let Investors Looking to Diversify Their Portfolios

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51 per cent of the UK’s brokers have been approached by landlords who are looking to diversify their portfolios within the last six months.

New research from OneSavings bank, the specialist lending and retail savings group, discovered that of the brokers approached by landlords looking to diversify, 56 per cent of enquiries were about diversifying into Houses in Multiple Occupation (HMOs). This is likely due to the fact that HMOs can generate higher yields for landlords, helping to mitigate the increased costs landlords have had to face over the last year.

Landlords were found to be also increasingly diversifying into commercial and semi-commercial properties following the recent PRA regulations and the removal of mortgage interest tax relief for buy to let properties. 14 per cent of brokers said that they had been approached by landlords aiming to increase the level of commercial property in their portfolio. An additional 9 per cent stated that landlords hoped to diversify into mixed-use properties. In comparison to residential buy to let property, landlords who hold only commercial property remain unaffected by the changes to mortgage interest tax relief. Furthermore, commercial or mixed-use properties are not subject to the same amount of stamp duty as residential buy to let properties.

Finally, 6 per cent of brokers said that landlords are seeking to diversify into student accommodation. This is amongst other options, such as holiday lets and serviced accommodation.

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 reforms to mortgage tax relief have reduced the amount of mortgage interest landlords could offset against rental income. These are in addition to the 3% stamp duty surcharge for second homes that was introduced in 2016.

Sales Director at OneSavings Bank, Adrian Moloney, 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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