"Landlords are on the hunt for greater yields, and... diversifying into commercial property or more complex residential options such as HMOs can offer this. "
A survey of brokers who have been approached by landlords looking to diversify found that 14% wanted to move into commercial property and 9% into mixed-use properties.
The PRA changes introduced stricter underwriting standards for portfolio landlords with four or more properties, whilst reforms to mortgage tax relief have reduced the amount of mortgage interest landlords could offset against rental income.
Unlike residential buy-to-let property, landlords holding only commercial property will not be affected by the reforms to mortgage tax relief. In addition, commercial or mixed-use properties will not incur the same amount of stamp duty as purely residential buy-to-let properties would.
56% of enquiries were about diversifying into HMOs, which can generate a higher yield for landlords to help mitigate against the additional costs that they now face.
However, changes to HMO regulations following a government consultation, due to be implemented from October, could also introduce additional regulation in this area.
In addition, 6% of brokers said landlords were looking to diversify into student accommodation. Brokers also pointed to other options, such as holiday lets and serviced accommodation, being brought up by clients.
Adrian Moloney, sales director at OneSavings Bank, said: “Landlords are on the hunt for greater yields, and, in the face of regulatory and tax changes, diversifying into commercial property or more complex residential options such as HMOs can offer this.
"With the buy-to-let market becoming increasingly complex, there is an opportunity for informed brokers to support landlords seeking new niches. However, these brokers must in turn be supported by specialist lenders who can offer the flexible lending needed to finance the growth of these segments of the market.”
