A rich seam of cases can be found outside the mainstream
The buy-to-let sector in particular has been subject to a significant amount of change over the past year, including tax and regulatory changes that have affected the profitability of many property investment businesses. This has resulted in landlords looking at alternative ways of making their enterprises successful.
At TBMC, we have seen an increase in what we think of as ‘complex’ BTL cases involving, for example, limited company applications, houses in multiple occupation or multi-unit blocks. These can present opportunities for landlords to avoid the recent changes to personal BTL tax relief, or to generate more rental income for their properties.
HMOs and MUBs have always been popular with professional landlords due to the potential for greater rental yields from multiple tenants, and there is a healthy appetite from lenders for this type of business – we currently have around 25 different HMO/MUB lenders on our panel. There were new HMO licensing rules introduced in October last year and a number of other factors that intermediaries should keep in mind when dealing with this type of case.
These include: the number of assured shorthold tenancies in place for the property; any shared facilities such as kitchens and living rooms; the type of tenant, e.g. students or DSS tenants; the number of rooms in the property; and minimum room sizes – new regulations stipulate a minimum of 6.51 sq m for an adult bedroom. All of these factors can affect the number of lender options available to a client.
Similarly, for MUBs, the number of individual units, unit size and the amount of letting experience a landlord has (often a minimum of two years is required) can affect the volume of lenders and products available.
Since the stamp duty hike in 2015, which introduced a 3 per cent surcharge on second homes, we have seen a growing interest from landlords in semi-commercial properties. Typically, this would mean a commercial unit such as a shop with a residential component above it, which would not be subject to the stamp duty increases and could present a good investment opportunity.
Factors for brokers to consider include: lenders often prefer the residential element to make up over 50 per cent of the building; separate access to the residential unit is normally part of standard underwriting criteria; minimum square footage of residential flats above commercial units needs to be met; and applicants should ideally have prior letting experience.
A number of specialist BTL lenders have an appetite for semi-commercial finance, such as Interbay and Shawbrook, and an extensive list of lenders via our TBMC commercial proposition.
This type of business seems to be more common now and can be relatively straightforward to place.
BTL bridging also provides a great opportunity for intermediaries to supplement their income and is currently a buoyant market in the UK. The reputation of bridging finance being punitively expensive seems to be waning, with bridge-to-let, light/heavy refurbishment and auction finance all providing useful resources for landlords looking for bargains or ways of improving the value and attractiveness of their property portfolio.
Bridging can be an excellent revenue stream for brokers and provides the opportunity to arrange the exit finance once any works have been completed. There are lenders exploring the option of a guaranteed exit on to a standard BTL mortgage – a so-called bridge-to-let product. For example, Precise Mortgages currently offers a bridge-to-let scheme for light refurbishment projects.
This is proving popular with landlords purchasing cheaper properties in need of a bit of attention before being let out.
Despite the recent contraction of the BTL mortgage market for property purchases, there is still plenty of business to be written in this sector and intermediaries with the right knowledge can help their landlords to develop profitable property portfolios.
Complex BTL, semi-commercial properties and bridging finance are all good examples of how intermediaries willing to explore solutions beyond mainstream BTL lending can offer a wider range of services to their clients.
Jane Simpson is managing director at TBMC