Landlords favouring HMOs to benefit from 'higher yields'

Landlords are increasingly favouring Houses in Multiple Occupation (HMO) and more 'complex property types' due to the often higher yields available. 

Mortgages for Business reports that 28% of landlords it surveyed are considering purchasing an HMO, up from 10% six months ago. 

The firm reports that the proportion of investors looking to purchase vanilla property – conventional houses and flats which fit mainstream buy-to-let lending criteria – has fallen from 83% to 79% in the last six months.

The study also shows that the introduction of the stamp duty surcharge in April has had an effect on the number of landlords looking to expand their portfolios.

In November 2015, 46% of landlords surveyed by Mortgages for Business said they were looking to expand their property portfolio. By May this year, that figure had fallen to 41%.

The proportion of landlords looking to sell properties has fallen, however, from 18% six months ago to 14% in May.

In preparation for the restriction of buy-to-let mortgage interest tax relief for higher rate taxpayers in 2017, it seems more landlords have been incorporating their portfolios into private limited companies. 

In May, 30% of those surveyed said they owned a property in a limited company vehicle, up from 22% a year ago. 

“With higher yields it is no surprise that there has been a sizeable shift towards the more complex property types," says David Whittaker, managing director of Mortgages for Business.

He says that there's also been increased interest in commercial and semi-commercial property as these asset classes do not incur the 3% stamp duty surcharge. 

"It is positive to see that fewer landlords are looking to sell property and shrink their portfolios and that a large proportion are still seeing the benefits of remortgaging," adds Whittaker.

“After the government’s tax crackdown on private landlords I can understand why investors are being more cautious about expansion. It will be interesting to see how long this cautious approach will last,” he says.