More buy to let investors seeking HMOs to offset higher taxes

A property investment financing specialist says an increasing number of buy to let investors are converting properties into Houses in Multiple Occupation to increase rental income as tax increases start to bite.

Roma Finance funded more conversion cases of this type in 2016 than any previous year, it claims. The main reasons for the demand for bridging finance to convert buy to lets to HMOs are the potential increase in yield and the greater opportunity to rent more rooms in cities and towns with high populations of young professionals and students. 

The firm says that despite the need for bridging finance to carry out the conversion and the cost of licencing, landlords are planning long-term by converting, notwithstanding the higher tenant turnover and higher maintenance costs associated with HMOs. 

An HMO is classified as such if at least three unrelated tenants live there, forming more than one household with toilet, bathroom or kitchen facilities being shared. A large HMO must have a licence if it is three or more storeys high or occupied by five or more individual people, although regulations can vary by local authority.

“One landlord we worked with calculated that in one of their properties they could rent out five rooms, vastly increasing income and yield, for just a £30,000 conversion cost. The increased rental income would cover the cost of the loan over 12 months. In this case it made a lot of sense to carry out the conversion” says a spokesman for Roma.

“Converting a single occupancy buy to let to HMO is one option for landlords and we have a number of cases already in the pipeline which will be funded in the coming weeks.”