Maximising rental returns: how specialist finance can help

As both tenants and landlords continue to face financial pressures, the arguments for and against rental increases show no sign of letting up. With the average rent in the UK now at £1,220 per month according to Zoopla – an 8.3% annual increase – the topic is back in the spotlight.

The issue is also increasingly becoming a political one, with the Green Party putting rent controls at the heart of their manifesto for the England and Wales local elections in May. Aiming to increase the supply of affordable social housing, their pledges include ‘taming’ the private rental market through rent controls in overheated areas, ending no-fault evictions, and ending Right to Buy.

Rental controls: a difference in opinion

Politicians have had landlords in their crosshairs before. For the last five years, London Mayor Sadiq Khan has been fighting for more powers to impose rent controls on the capital’s private rental sector, while Housing Secretary Michael Gove has remained staunchly opposed to these plans. Speaking at the National Residential Landlords Association conference in October 2023, he declared that rent controls were “not just an intervention too far, but completely the wrong approach”.

The British Property Foundation has pointed out that rent control can have unintended consequences. These consequences may include reducing the supply of rental housing, excluding tenants with lower incomes and less stable employment compared to their higher-earning counterparts, and creating a “shadow” rental market.

Additionally, it fails to recognise the reasons why private landlords are increasing rents. For many, the reality is that they have no choice in the current climate. As UK Finance reported, there were 13,570 buy-to-let mortgages in arrears in the fourth quarter of 2023, an 18% increase on Q3. This helps to explain why increasing rents is the only option for many landlords, particularly when section 24 is taken into consideration.

Maximising returns

Landlords need to actively consider their return on investment and ensure that they are recouping their expenditures. A profitable solution for some is converting existing assets into HMOs, particularly if they have permitted development rights. An HMO can offer reduced-cost accommodations and significantly boost a landlord’s rental income.

Making structural improvements (heavy refurbishment) to the property can also increase its value, which is advantageous for refinancing or selling purposes. Another viable option is to conduct a light refurbishment. General improvements or an update of the décor can yield tangible results while saving time and money. Tackling any existing issues can also prevent future expenditures and avoid the need to address unexpected problems with the property.

A short-term funding solution

Undertaking any works requires an initial outlay and many property owners may not have any spare funds available immediately. A bridging loan can come in handy in this situation. It is a short-term solution that allows borrowers to use the equity they have in their property – or properties – to obtain the necessary funds for renovations.

MT Finance has two refurbishment-focused products. The first is our light refurbishment bridging loan which can be used for cosmetic updates as well as rewiring or repainting.

Light refurb key criteria:

  • Up to 70% LTV
  • Loans from £50,000
  • 1st & 2nd charge loans
  • Terms from 1-24 months
  • Residential, commercial & semi-commercial assets
  • No exit fees or ERCs
  • Unmortgageable properties accepted

The second product is our heavy refurbishment bridging loan which covers structural changes including property conversions and extensions. We offer 100% coverage of build costs and allow additional withdrawals as the project advances. These requests will be evaluated based on the current value of the property.

Heavy refurb key criteria:

  • Up to 65% LTV
  • Loans from £50,000
  • Terms from 1-24 months
  • Residential & semi-commercial property
  • No exit fees or ERCs
  • 100% of build costs available
  • Further draw-downs available

Long-term funding solutions

Purchasing a single-use residence and converting it into an HMO via a BTL mortgage is one route your client could consider to generate a pooled income.

Alternatively, your client could originally take out a bridging loan for quick access to funds and move on to a BTL mortgage once planning is in place, works are complete, and licensing is applied for. The property’s new valuation will also take into account any completed works, and if the open market value has increased (which is expected), your client can use the equity to secure higher borrowing. MT Finance offers a variety of BTL mortgage products, including standard residential, HMOs, and MUFBs.  You can access our BTL mortgage product guide here.

Contact MT Finance

As landlords strive to maintain profitability, it’s important they receive the necessary support to accomplish this goal. At MT Finance, we understand the struggles your clients face and are here to help. To find out if we can turn your client’s aspiration into achievement, fill in our online form, and a member of our team will be in touch shortly.