Photo by Ixana Property

What a September we’ve had. After a sleepy August, it’s been back with a bang!

That hasn’t been helped by the ups and downs (but mainly ups!) of interest rates. Uncertainty in the Middle East and the rising cost of oil are pushing up swaps and gilt yields, which is in turn putting upward pressure on mortgage rates.

Within the specialist market, we have a couple of lenders that rely more heavily on their own savings and are therefore less reliant on external funding. This has meant their rates have remained more stable — and, in some cases, a little lower.

It’s looking increasingly likely that we’ll see a Base Rate increase before the end of the year, and potentially further increases after that. So, my advice would be to start looking early when you’re coming up to refinance, and don’t dither if you’re offered a rate that works for you!

You do need to be a little more cautious when pricing deals for refinance after a bridging loan, though. Who knows where rates will be in 9–12 months?

The impact of the Renters’ Rights Act on mortgages and valuations

This month, I wanted to look at the impact of the Renters’ Rights Act on mortgages and valuations.

We’re already seeing a few changes as a result of the new rules, so I thought I’d talk you through some of the impacts we’re seeing.

Valuing a vacant HMO

This is the first noticeable change we’ve seen since the Renters’ Rights Act came into force in May.

Valuers are always cautious, and they tend to be particularly careful when there’s a change in the market until they can see how that change becomes embedded in practice.

The concern seems to be that, under the new rules, the process of filling a vacant HMO could potentially take longer. As a result, we are seeing some valuers deducting a couple of months’ rent from the investment value of a vacant HMO.

If the property were fully tenanted, they wouldn’t be able to make that deduction.

We’ve been chatting to clients about this, and where they’re confident they can fill the property quickly, some are choosing to wait until the property is full — or nearly full — before having it valued.

Of course, this comes with its own complications, particularly around managing access for the valuer, so it isn’t always ideal.

If you think it will take longer to fill the property and you’re paying interest on your bridge every month, it may actually be more cost-effective to refinance quickly and take the hit on the valuation.

It’s also important to note that this isn’t happening on every case, which makes deciding on the best strategy particularly tricky!

Buying with vacant possession

As Article 4 areas increase and HMO conversions become more expensive, we’re seeing more clients looking to purchase existing HMOs to refurbish rather than starting from scratch.

This can be a great strategy, but it does come with its own challenges under the new rules around re-letting.

If you buy a property with tenants in situ, you can’t simply ask them to leave so that you can carry out a standard refurbishment.

And if you do legitimately obtain possession because the works are on a sufficiently large scale to meet the relevant possession ground, there are restrictions on re-letting the property afterwards.

So, the choices may be to buy with vacant possession, or to carry out the refurbishment gradually as tenants naturally leave.

Buying with vacant possession may put some landlords off selling, as they will inevitably have a period of lower or no rental income.

On the other hand, buying with tenants in situ means you can’t necessarily complete the refurbishment quickly, which can make bridging finance less suitable.

This means you may need to find a property that is already mortgageable — and you might not be able to access those lower-priced properties we’re used to seeing that need taking back to brick.

It doesn’t appear to be making huge changes to the market just yet, but it’s definitely something landlords need to be aware of when considering their next project.

Planning your next move?

As always, if you want to have a chat about strategy, how refurbishment bridging works, a particular property you’re looking at — or anything else — please book in a call here.

About the Author:

Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.