The options set to reinvigorate the buy-to-let market

It’s no secret that the war on landlords has escalated heavily since 2016 and as we find ourselves in a new decade, the effects of new punishing tax regimes and stringent regulations has led to huge numbers of landlords throwing in the towel.

The stifled momentum can be attributed to the withdrawal of higher rate tax relief on mortgage interest, a three percent charge on stamp duty land tax for second homes and buy-to-let, and stricter affordability checks as well as rent checks for landlords with four or more properties.

With more unfavourable rules set to be phased in until 2021, landlords will feel a squeeze on their profits and the shrinking of their yields. If the regulatory environment doesn’t soften soon then the UK will have to face the reality that the rental market will continue to stall.

Despite this challenging environment, the figures in 2019 show that 30% of landlords hold more than one home, signalling that professional landlords have been adding to their stock. Those who have stayed afoot are likely to be those with larger property portfolios, which is a testament to how the market continues to operate more and more like a business.

Landlords are aware of the need to implement regulatory measures to protect renters in the property market, yet little has been done to reassure landlords’ valid concerns. Equally, this has led to fewer rentals on offer, inadvertently causing a rise in rents. To lessen the exodus and to ensure the property sector remains intact, let’s dig into the options to support landlords going forward.

HMOs - a case to be made

Houses in multiple occupation (HMO) have become an attractive option for professional landlords with a larger, more balanced portfolio to access better yields. HMOs are fast becoming an increasingly common buy-to-let investment for a number of reasons. What captures the greatest interest is the opportunity to be saddled with less risk. For instance, if the property is let to a number of short, medium, and long-term tenants and one tenant cancels their booking agreement at short notice then landlords don’t lose out on rental income because of the other guests.

As HMOs are seen as a revenue cost due to the refurbishment and structural work required to meet the general requirements, the income of the property becomes tax-deductible. This is only applicable under the ‘Plant & Machinery Capital Allowances’, which attests to whether the communal areas qualify for income tax relief. The purchase and capital improvement costs for the communal areas will continue to be treated as an expense of the landlord’s rental business.

While there's certainly enough weight behind pursuing this option, it is imperative to do the due diligence on the local authority’s HMO requirements which vary from borough to borough. In doing so, landlords stand to gain high returns and by setting up a limited company for their portfolio they can enjoy the benefits from the tax reliefs previously enjoyed on buy-to-let mortgages.

The mistake is to rule this option out because of the hassle-factor when in fact there are solutions available to ensure your HMOs are not only well-selected but equally effectively managed. For more seasoned landlords managing multiple rentals, a good strategy would be a combination of buy-to-let properties as well as HMOs. This way, the overall tax losses can be made up for by the reduced tax bills on the profits from the HMO property.

Spread your portfolio further

Landlords can also go further with their portfolios by looking beyond the boundaries of the capital for new investment. At the centre of any successful buy-to-let portfolio is a decent rental yield alongside strong rental demand.

Housing prices across the country have not only stabilised but shown great promise, from Manchester to Liverpool, the opportunity to boost your portfolio is well and truly alive.

As the popularity of North-West cities rises, so do more accessible transport links, attracting more developers to invest billions of pounds into regeneration projects to boost the region. There is no doubt that the market is primed for landlords starting to look at their investments as a full-time business.

To tap into this new landscape and effectively manage multiple properties, investing in a well-targeted and responsive management service can allow landlords to not only optimise, but also boost their yields across their portfolio of short, medium and long-term lets regardless of location.

Rules and regulations are here to stay but that certainly shouldn’t derail the buy-to-let sector. While it is hard to bid farewell to policies that once served landlords, now is the time to start fresh and collectively look at the measures to take to improve the health of the sector. One thing is certain, the move to professionalise the sector is happening and we need to all play our part and contribute to the conversation of what that looks like.

Nakul Sharma was the CEO at Hostmaker, which ceased trading earlier this week.  

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