It’s been almost a year since Liz Truss’s ill-fated mini-Budget. We’re all aware of the chain of chaos that ensued but the impact it had on UK landlords and property investors took a little longer to assess. By early 2023 however, it soon became evident.
Pulled products and mortgage rate increases had investment property owners facing a financial cliff edge, with some (particularly amateur landlords) having to make the stark choice of raising their rents or selling up altogether.
One set of data which really crystalised the effect of the mini-Budget on investors and landlords was Bridging Trends. Compiled by MT Finance, it revealed that between January and March this year, demand for bridging loans to fund an investment purchase slumped to a record low of 15% of total contributor transactions, down from 26% from the previous quarter. This suggests that landlords and property investors were exercising caution amid an uncertain environment and rising interest rates.
Looking forward
By Q2 things showed signs of recovery, with Bridging Trends data revealing the proportion of bridging loans used to fund investment purchases had jumped to 22%.
The announcement from the Bank of England governor Andrew Bailey that interest rates may not need to increase much further will hopefully further fuel these green shoots. Landlords and investors will be further buoyed by RICS reporting in their July 2023 UK Residential Market Survey that tenant demand increased during the Q2 2022, making it the strongest quarterly rise since early 2022.
Maximising investments
Despite the pressures landlords have faced in recent months, they are known for seizing the opportunities available to them and we have noticed an uptick in landlords finding ways to make their property more profitable. Converting a single residence into an HMO is a way of ticking all these boxes. Not only does it help to generate more income for the landlord but it can also ease some of the pressure from a market which is suffering an acute lack of supply.
Securing accommodation in an HMO can also be an attractive prospect for those unable to pay large sums in rent. As Savills recently pointed out, this is a particular concern for younger people, students and essential workers who are only too familiar with the issue of affordability. It is however essential that your client does their research beforehand. Some conversions may come under Permitted Development, meaning no planning permission is needed but landlords should always check with their local authority before starting a project or buying a property. Clarity should also be sought on the type of licence that would be required if applicable.
Providing solutions
If your client is looking to convert a property into an HMO then a bridging loan from MT Finance could be a way of securing funds quickly. Available at up to 65% LTV, we can provide up to 100% of build costs while further draw-downs are available. Terms are available for up to 24 months with no exit fees or early repayment charges. Further flexibility is provided when it comes to repaying interest. Your client has multiple options to choose from to make these payments, including serviced, retained or part and part. Once they have come to the end of their term, they can look to exit onto a longer-term buy-to-let mortgage.
Both HMOs and MUFBs are included in our buy-to-let product range. Designed to be effortless, stress testing starts at 125% while first-time buyers and landlords are accepted on standard residential products. Cases that fall outside of our standard criteria are manually underwritten and we have a minimum loan size of £25,001 and a minimum valuation of £49,935 on standard residential products.
To find out more about our buy-to-let or bridging loan products, call us on 0203 051 2331 or submit an enquiry online and a member of our team will be in touch with you shortly.