Incoming tax rises are prompting landlords to turn their properties into HMOs.
The government’s decision to restrict buy-to-let tax relief on mortgage interest payments could mean lower profits for landlords. These changes will be phased in from April this year.
Some landlords are moving to convert their buy-to-let properties into HMOs in an effort to boost rental income and increase yields, or moving into commercial property.
HMOs, Houses in Multiple Occupation, are defined as properties in which there are three or more tenants living there separately but who share the facilities.
If a property currently only has one tenant paying rent, but the property can accommodate three or more tenants, then the landlord will receive more rental income if he/she converts the property to accommodate more than one tenant. Higher rental income can then be used to offset higher tax.
Roma Finance, a specialist lender, has said it has dealt with more HMO cases in 2016 than ever before.
2016 was not an easy year for buy-to-let investors, and investor activity has cooled slightly in recent months.
As a result, first-time buyers are at an advantage, as there is now more choice on the market.
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