OneSavings Bank recently reported that more than 50% of mortgage brokers were approached by investors in buy to let properties about the diversification of their portfolios. This has happened within the last 6 months.
HMO’s the most Popular Choice
Of the buy to let investors that approached brokers regarding the diversifying of their portfolio, 56% made enquiries about investing in houses with multiple occupations (HMO’s) as the yields would be higher for them.
An HMO property will typically provide a yield which is over 3% higher than a single tenancy property according to Research for Mortgages. But the news is not all good about HMO’s as the government will be introducing more regulation for them in October 2018.
Interest in Commercial Properties
In the research conducted by OneSavings Bank they also discovered that around 14% of brokers were approached by buy to let investors about commercial properties as they wanted to expand their portfolios in this direction. There were another 9% of brokers who said landlords showed interest in mixed use properties.
If a landlord just holds commercial properties in their portfolio then they will not be affected by the changes to mortgage tax relief like residential buy to let investors. There are also stamp duty benefits from holding just commercial or mixed use properties.
Other Investment possibilities
Another 6% of mortgage brokers stated that buy to let investors showed an interest in diversifying into accommodation for students. There were other property investment enquiries too for serviced accommodation and holiday lets.
Has the Government pushed Private Landlords too far?
When buy to let property investors were asked why they were looking to diversify their portfolios, they told the brokers that the recent tax reforms and other changes made by the government had driven them to this point.
A spokes person for OneSavings Bank stated that buy to let property investors were seeking higher yields. These investors believe that the recent residential tax and regulatory changes were just too severe and that diversifying into HMO’s or even commercial property was the best course of action for them to take.
He went on to say that the buy to let market has become a lot more complex recently, and it is right that buy to let property investors seek out different investment opportunities with experienced mortgage brokers.
In order for the brokers to assist buy to let property investors find new niches they have to have the support of specialist lenders who will be more flexible with their lending and will be willing to provide finance in these different niche areas.
Diversifying has its problems
It is usually the case that when higher yields are sought there are higher risks associated with doing this. As an example, rental voids on commercial properties can be a lot longer than with residential properties and this will mean that the investor will be subject to a lot more costs. If you are a buy to let investor looking to diversify your portfolio then do your homework first.