Roma Finance, the specialist bridging finance lender, are seeing buy to let landlords converting their properties into Houses in Multiple Occupation (HMO) in order to increase rental income as tax increases start to bite.

Roma Finance funded more conversion cases of this type in 2016 than any previous year. The main reasons for the demand for bridging finance to convert buy to lets to HMOs are the potential increase in yield and the greater opportunity to rent more rooms in cities and towns with high populations of young professionals and students.

2016 was an annus horribilis for property landlords but many have been working on, and implementing, strategies for minimising their outgoings, including tax, but also maximising the income and yields on existing properties they own.

Despite the need for bridging finance to carry out the conversion and the cost of licencing, landlords are looking to the long term by retaining property while at the same time increasing the income from it.  This has several benefits, including providing a situation in the future where they need to raise further capital based on rental incomes.

HMOs are well known to offer the potential of higher rental yields and landlords have clearly been doing their sums to make sure they are operating a profitable portfolio capable of securing future growth too. But tenant turnover can be higher and be more labour-intensive than single buy to lets.

An HMO is classified as such if at least three unrelated tenants live there, forming more than one household with toilet, bathroom or kitchen facilities being shared. A large HMO must have a licence if it is three or more storeys high or occupied by five or more individual people, although regulations can vary by local authority.

Scott Marshall, managing director at Roma Finance, commented: “Recent Government policy has put the spotlight on the buy to let market and landlords have acted quickly to mitigate any negative effects on their income. Many want to retain property but maximise income and we have worked with many landlords to fund conversions to HMOs. One landlord we worked with calculated that in one of their properties they could rent out five rooms, vastly increasing income and yield, for just a £30,000 conversion cost. The increased rental income would cover the cost of the loan over twelve months. In this case it made a lot of sense to carry out the conversion.

“Converting a single occupancy buy to let to HMO is one option for landlords and we have a number of cases already in the pipeline which will be funded in the coming weeks.”