The Intermediary – May 2025 - Flipbook - Page 51
BUY-TO-LET
Opinion
Preparation,
as much as
opportunity
I
t’s been a particularly active
time in the buy-to-let (BTL)
market, with momentum
building across late 2024 and
into this year. According to
UK Finance, landlord loans
totalled £9.6bn across 52,648 cases in
the final three months of last year —
that’s a jump of 47.2% by value and
39.2% by case compared to Q4 2023.
But where are landlords focusing?
As our own Q1 2025 Rental Barometer
shows, they are still responding to
strong tenant demand, particularly in
areas with aractive yields.
Yields themselves, though, are
showing signs of stabilisation, albeit at
high levels. While the North East leads
with 9.2%, followed by 8.4% in the
North West, the yearly upli across
England and Wales was just 0.3%.
That’s a far cry from the average spikes
we saw in 2023, but let’s point out that
the average ‘England and Wales’ yield
is a construct, and there are clearly
higher yields to be had.
The quest for yield is a continuous
process for landlords, and it’s not
going to stop now, particularly
when the cost of owning investment
property continues to rise, along
with regulatory and taxation
responsibilities that must be endured.
It’s no surprise, therefore, to see
landlords constantly exploring how
to improve the performance of their
portfolios. For many, that points
toward houses in multiple occupation
(HMOs) and multi-unit freehold
blocks (MUFBs), which have the
potential to deliver higher rental
yields and stronger income security.
That shi is already visible in our
data and market conversations. But
as more investors consider HMOs for
the first time, there’s a need to support
them with guidance – not just on yield
potential, but on the technicalities of
licencing, planning and finance that
underpin this more complex area of
the market.
That’s why we’ve recently launched
‘A Guide to HMOs: Licencing,
Planning & Article 4’, to give advisers
and their clients the knowledge and
confidence to navigate this space.
Understanding the details
The guide covers a wide range of
key issues. First, there’s licencing,
outlining the differences between
mandatory, additional and selective
licencing schemes. A five-bedroom
property in one borough may require
only a mandatory licence, while
a similar four-bedroom house in
another may fall under an additional
or selective scheme.
Then there’s planning. The guide
explains the distinction between C3,
C4 and Sui Generis use classes, and
how these affect the ability to convert
a property into an HMO.
Most notably, it explains how
Article 4 Directions restrict permied
development rights (PDR). A landlord
may assume they can switch from C3
to C4 without issue, but if the property
lies within an Article 4 area, full
planning consent is required — even
for smaller HMOs.
The guide also covers how to
evidence pre-existing HMO use before
Article 4 was introduced. Without
the right documentation, landlords
risk needing retrospective planning
approval. This could derail mortgage
finance or cause complications during
the conveyancing process.
There’s also technical detail on
lesser-known classifications like
Section 257 HMOs – converted blocks
of flats that fail to meet current
building regs and where less than
two-thirds of the units are owneroccupied. These fall under additional
WES REGIS
is national account
manager at Fleet Mortgages
licencing in some councils and are
increasingly on lenders’ radars.
Importantly, the guide also outlines
our own lending approach. For
example, we’ll oen place smaller
HMO-type properties – say, fourbedroom houses with locks on
bedroom doors and multiple Assured
Shorthold Tenancies (ASTs) – on our
standard product range if they don’t
need a licence. That means landlords
can access lower rates and, in many
cases, free or discounted valuations.
Where a full HMO product is needed,
we offer lending up to 75% LTV, with
properties assessed on a room-by-room
rental basis.
As yields sele into a tighter range,
landlords must be more proactive
in shaping their portfolios. HMOs
and MUFBs aren’t suitable for every
client, but for many, they offer a
compelling blend of yield potential
in order to meet the still-high tenant
demand we are witnessing in many
areas. That’s especially true in areas
with a strong young professional
demographic, student population or
affordability constraints.
But success in this sector is as
much about preparation as it is about
opportunity. Advisers who understand
the planning rules, licencing
schemes and lender appetite are in
the best position to help landlords
unlock value without stumbling
into unexpected costs or compliance
challenges. Our guide helps you do
exactly that – by giving you the tools
to talk with authority, ask the right
questions, and guide clients through
what can otherwise be a daunting leap
into a more complex, but rewarding,
area of investment. ●
May 2025 | The Intermediary
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