Maximising Opportunities In The BTL Sector

2022 has been a tumultuous year for interest rates, with some of the biggest interest rate rises in the last 27 years. As a result, property owners coming to the end of their current terms are facing a substantial increase in their monthly mortgage repayments.

Increased monthly payments isn’t the only issue that landlords are currently having to contend with, 40-year high inflation rates, the cost-of-living crisis and undertaking the necessary work to meet EPC requirements are all wreaking havoc with landlord’s profit margins. At such a challenging time, it’s vital that landlords are aware of the opportunities within the sector that can maximise their income and profit margins. HMOs and MUFBs

Demand for rental properties continues to outstrip the available stock, with growing numbers looking for affordable, quality rental options. It’s no surprise therefore that HMOs and MUFBs have risen in popularity with both tenants and landlords.

Landlords with a HMO or MUFB can benefit from increased rental yields, as the amount of rent charged to multiple tenants will be higher than if the property was let to a single household. In addition, the risk for rental voids is lower. With multiple tenancies running, the loss of one tenant does not result in a complete void, rather a dip in profits. One area that HMO landlords will need to consider though is that HMOs tend to offer rental inclusive of bills, so will need to ensure they factor in the cost of utilities when looking at this opportunity.

Holiday-Lets

The pandemic triggered a boom in the number of Brits opting to holiday in the UK and a newfound appreciation for staycations. While the lifting of travel restrictions has made international holidays easier again, a whopping 47% of Brits are planning a UK holiday in 2022 – with a third of those looking for self-contained rental accommodation.

The benefit for landlords is that holiday-lets can deliver much higher rental yields, as the daily or weekly charge is considerably higher than a residential buy-to-let. For example, as of July 2022, the average monthly rental of a property in St Ives, Cornwall is £795, while the average cost for a week’s holiday rental is 2.6 times higher at £2,067.

Limited Companies

In 2017 HMRC began to phase out, over a period of 4 years, the costs that landlords could deduct from their rental income when calculating their taxable profit. For many private landlords, this made their investments significantly less profitable. Landlords, particularly those that owned a portfolio of properties, began to move their properties into a Limited Company structure.

Managing Director

A Limited Company can allow landlords to benefit from certain tax benefits, for example instead of paying tax on rental income a landlord will pay corporation tax, which as of the 2022-23 tax year stands at 19%. Another benefit is that landlords are able to deduct certain expenses that they incur through their Limited Company.

With the cost of managing a buy-to-let property increasing, incorporation is proving to be a popular option for landlords, and not just those with large portfolios. However, there are considerations that landlords need to be aware of including no capital gains tax allowance for properties sold that are held in a Limited Company, additional costs of running a company and potentially higher mortgage rates.

Landlords are advised to seek tax advice on the pros and cons of Limited Company holdings and how they apply to each individual scenario.

Using Specialist Finance to maximise rental income

Borrowers looking to obtain buy-to-let mortgages via a Limited Company or for a HMO, MUFB or holiday-let are typically underserved by the high-street. However, specialist finance lenders are more adept at dealing with the complexities that can arise with these types of cases.

At West One, we offer a flexible approach to borrowers. Our specialist underwriting team, can consider applications from across the spectrum and work closely with brokers to find the right product for their clients.

Here are a few reasons to consider West One…

Day one Limited Company cases with no rate loading

First-time landlords for HMOs, MUFBs and holiday-lets. No BTL or holiday-let experience required Multi-unit freehold building to 10 units (including partial blocks) HMO up to 10 beds. Over 6 beds and up to 10 beds by referral

If you have cases to discuss or require any further information, please contact the broker support team at West One on 0333 123 4556 or email btlbrokersupport@westoneloans.co.uk