It can’t be denied that within Chancellor Rachel Reeves’ first budget under the new Labour Government, there were several new measures that will significantly impact the Buy-To-Let (BTL) market. However, we are already seeing some resilience and maintained levels of interest in the sector – including sustained interest from investors in Houses in Multiple Occupation (HMO).
In the immediate term, the increase to the Stamp Duty Land Tax (SDLT) surcharge on second homes from 3% to 5% will very likely trigger some landlords to reconsider their property purchase plans, especially on high value sites and if those purchasing are non-doms. What’s more, the new tax implications could be significant, as they may impact profit margins on both income and eventual property sales. Additionally, property improvements to meet higher energy efficiency standards will increase short-term costs and need to be weighed up against future property value and tenant appeal.
Some commentators have pointed to waning levels of interest in HMO investment with industry figures showing a 15% fall in the value of HMO transactions since they peaked in 2023. However, we continue to remain confident on the long-term investment appeal of the HMO, with Together’s lending bucking this apparent trend – we saw an 18% increase in loans for HMOs between 2023 and this year.
Together’s Commercial Market Sizing Report from earlier this year analysed the BTL and HMO hotspots in more detail forecasting the strongest growth in BTL lending, up 50% over the five years to 2028. Our report also identified prime opportunities for residential landlords at a time when a lack of housing supply and mortgage affordability means increased demand from rental tenants, maintaining BTL investments’ appealfor professional landlords.
On the residential side of BTL, findings from Together's Road to Residential Revival Report [CM1] shows a growing trend among landlords opting to diversify their portfolios to include higher yield properties, such as student lets and HMOs as an adaptive solution to remain resilient in the face of economic uncertainties. Supporting research from Hamptons highlighted that over 50,000 landlords, a record amount, set up limited companies in 2023 alone to capitalise on the more generous tax regime afforded to them, compared to landlords owning property in their own names.
HMO properties can provide attractive yields, due to multiple tenants contributing to rental income, whilst also potentially offering a more cost-effective option to those looking to rent. The report from Together suggests a growth in rental demand across various regions with investors strategically positioning their portfolios in cities with strong tenant demand, particularly among students and young professionals. Indeed, many BTL landlords are looking at property outside of London and the South East as a way of maximising their income.
By offering streamlined BTL financing options, Together enables landlords to expedite acquisitions, transforming properties into income-generating assets faster. Additionally, Together’s online Decision in Principle (DiP) pre-approval system for auction financing allows landlords to bid confidently, knowing they have funding ready to deploy.
That said, it’s crucial to understand the financial and operational dynamics involved with BTL investments. Buy-to-let mortgages, for instance, typically span years and require consistent rental income for repayment. For investors with properties prone to vacancies, having a supplementary income stream or insurance—like Rent Guarantee or Unoccupied Landlord insurance—can mitigate risks.
HMOs, while yielding higher rental income, demand a more hands-on approach, including compliance with health and safety, tenant management, and adherence to licensing regulations. With Together’s specialist mortgage products and expertise in property types, income, and employment variability, landlords can feel better equipped to navigate these hurdles and capitalise on growth opportunities in the HMO market.
As demand for rental housing increases, HMO properties remain compelling investment options. By leveraging flexible financing options and staying informed on regulatory updates, landlords can position themselves for success in a dynamic market.
Whether a seasoned investor or a new landlord, understanding and responding to market trends will be essential to unlocking the full potential of property investment in 2024.
