It is an understatement to say that property investors have a variety of opportunities within the current UK marketplace. There is a wide range of investor profiles and it’s important to draw a distinction between those that are highly experienced in the property industry, and those who may purchase a handful of individual residential properties as part of a diversified retirement strategy. Where the latter is concerned, as long as the client has modest property investment ambitions, this purchase behaviour is often viewed as a sound strategy. These investors often view their investment properties as a part-time activity to be run alongside their main income generator.
For those property professionals who invest as a full-time job, the focus is different - the returns can be higher, but so too can the costs. For those seeking greater returns by investing in multiple properties, the associated interest rates offered by banks inevitably increase as the size of the investment portfolio grows beyond that supported by the mainstream buy-to-let (BTL) lenders. As investors turn to the more specialist funders and challenger banks, rates increase to reflect the need for individual case underwriting rather than online scorecard-led models.
As a result of this, investors often look to acquire property that can then deliver much greater returns on the investment made. Different property types are considered, such as Houses of Multiple Occupancy (HMOs) or student accommodation, which offer better yields. However, asset classes of this type usually also come with increased legal costs, management time and maintenance expenditure, as well as being subject to stringent licensing from local authorities.
A multi-unit property on one title
In order to avoid the cost and complexity of HMOs, today's property investors have found an alternative which has excellent versatility: the multi-unit property on one title, which can be split into several titles if needed. This is often a viable alternative investment for experienced landlords and such properties come in many shapes and sizes.
The ability to split out and sell off units as individual titles enables investors to cater to the changing demands of tenants. Although HMOs (ie flat shares) are a popular choice nowadays, they are not considered a long term housing option. Single people lacking the income or savings to buy are seeking this style of accommodation but would they look to raise a family in these units? Probably not. This means that the investor who initially made the financial and resource commitment to convert a large house into several self-contained units (rather than an HMO), would reap the rewards of having a more versatile property for maturing families.
Similarly, the provision of a separate annex to an established property would facilitate additional rental yield, making the property more desirable as families look to purchase property which can provide separate accommodation for other generations. This would enable an elderly relative or a younger member of the family to retain or gain independence whilst remaining close to home.
How it could work
Speculative developers would find a suitable property with the benefit of additional land where the property can either be extended to form additional space, such as a granny annex, or an entirely new dwelling. The property can then be purchased prior to planning permission being granted.
This type of project, where the property is bought with a view to unlock its future potential, will require the investor to have previous experience of similar projects. If this experience can be proven, then we enter the domain of the specialist lender.
Shawbrook, being one such lender, has finance options to suit most situations and will not shy away from multi-units held on one title. For example, if we had a situation where an investor wished to take advantage of a favourable site, Shawbrook would advance a short-term loan (STL) while the client sought planning permission. Once granted, the client could then seek to repay the STL with development funding from a specialist development lender.
Once the works are complete, Shawbrook is able to assist again by redeeming the development funding with a specialist BTL mortgage, allowing the client to release any capital value raised from the works to move onto the next project. If it was the client’s intention to sell the units once completed, we can also provide a short-term loan while the properties are sold.
There are more options than ever available for property investors in the current market including single properties, HMOs, student lets and multi-units held on one title. In the investor market, the ‘one title’ option is considered to have excellent versatility – it benefits from fewer regulatory requirements yet you still have the ability to sell the property piecemeal. It is ideal for those investors with vision for a property, and while the higher conversion costs should be considered, it has proved a smart move for many.
