Buy to let landlords in UK looking to diversify due to tax and regulation changes

Tax and regulation changes are prompting many buy to let landlords in the UK to diversify with over half indicating they are looking to move into the houses with multiple occupants sector, new research shows.

Some 51% of brokers say they have been approached by landlords looking for change in the last six months, according to a new survey from specialist lender OneSavingsBank.

They found that 56% of the landlords surveyed wanted to diversify into HMOs, 14% wanted to diversify into commercial property and 9% into mixed use, prompted by recent tax and regulatory changes.

It is generally regarded that HMOs can generate a higher yield for landlords which will help to mitigate against the additional costs that they now face. Indeed, research by Mortgages for Business found that the average yield of a HMO could be 3.3% higher than a property with one tenancy agreement.

However, changes to HMO regulations following a Government consultation, due to be implemented from October, could introduce additional regulation in this area.

Landlords are also increasingly diversifying into commercial and semi-commercial properties in the wake of the recent PRA regulations and the changes to tax treatments for buy to let properties.

Unlike residential buy to let property, landlords holding only commercial property will not be affected by the reforms to mortgage tax relief. In addition, commercial or mixed-use properties will not incur the same amount of stamp duty as purely residential buy to let properties would.

In addition, 6% of brokers said landlords were looking to diversify into student accommodation. Brokers also pointed to other options, such as holiday lets and serviced accommodation, being brought up by clients.

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.

‘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,’ said Adrian Moloney, Sales Director at OneSavings Bank.

‘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,’ he added.