As the financial pressures associated with managing a rental property continue to increase, many landlords are looking for new ways to improve returns. And it seems a growing number are turning to more complex property investments such as combined commercial and residential properties, houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs). These specialist buy-to-let properties can potentially achieve a higher rental yield than traditional single-lets and are particularly attractive to experienced landlords with a full-time focus on their buy-to-let business.
Here we take a closer look at the benefits and considerations of becoming a MUFB landlord.
A multi-unit freehold block is a single freehold title property divided into multiple, independent residential units. This could be a purpose-built block of flats, a house or houses converted into flats or a row of terraced houses. Unlike HMOs, where a property is let by the room with shared facilities such as bathroom and/or kitchen, a MUFB will have the following characteristics:
The main attraction of a MUFB for many landlords is the potential to achieve greater rental yields and capital growth. In the current economic climate of rising costs, increasing taxes and stricter regulations associated with running a buy-to-let property business, this can prove to be attractive. While the average rental yield for a traditional buy-to-let is around 5.2%, MUFBs benefit from multiple income streams and can achieve yields of up to 7.0% (source: the Mortgages for Business Buy to Let Mortgage Index Q2 2022).
In addition, with MUFBs the risk of void periods is much reduced. When one tenant gives notice, there are still several others who continue to pay, sustaining an income and mitigating the financial impact of one tenant leaving.
Furthermore, the appetite for self-contained homes in property blocks shows no sign of slowing and MUFBs provide an opportunity to capitalise on this trend. Good quality, affordable housing is a great solution for many during the current cost of living crisis, particularly among the younger generation who make up a large proportion of tenants in the rental market.
Although MUFBs can attract higher rental yields than single occupancy buy-to-lets, it’s also more complex. MUFBs can be anywhere between two to 100 separate units and often there will be a need for the conversion or refurbishment of a single-occupancy property. Although MUFBs don’t require a license, planning permission may be needed from the local council before work can commence and this can vary by location, so it’s essential to check first before commissioning any work. Because of the increased costs and time involved in preparing a MUFB, forward planning and constant monitoring are essential.
The reason many MUFB landlords are full-time is due to the level of administration, management and maintenance required for multi-unit properties compared to a single buy-to-let. The commitment needed will obviously depend on the number of units, but managing multiple ASTs with individual amenities means multiple safety checks on things like energy supply and regulation compliance such as energy efficiency ratings. It also means being able to ensure all tenants are happy and any issues are dealt with promptly and professionally.
Then there is the question of securing the right short and long-term finance.
The buy-to-let mortgage market is constantly evolving and there are now more options available for complex property types. However, it remains a very niche area with dedicated products offered by specialist lenders typically through an independent mortgage broker such as Vincent Burch Mortgage Services.
Interest rates and product fees for MUFB mortgages tend to be higher than single occupancy buy-to-let mortgages, so the support of an experienced broker will provide valuable insights into the market and help you make a smart choice. And if you’re looking for short-term finance such as a bridging loan for a conversion, this can be taken into account at the outset.
Given the complexities of a MUFB, landlords tend to be more experienced. However, some lenders will consider offering multi-unit freehold mortgages to first-time landlords. Conversely, some multi-unit properties are deemed too complex to be financed via a buy-to-let mortgage and in these instances, a commercial mortgage is more appropriate.
Whatever your needs, we recommend speaking to an independent mortgage broker as well as seeking professional tax advice on the best way to structure your investment.
How can Vincent Burch Mortgage Services help?
As an independent, whole-of-market mortgage broker, we have access to specialist multi-unit freehold block mortgage lenders offering you choices, whatever your financial requirements. Our team of experts have over 200 years of combined specialist experience and provides a personal, professional service throughout.
Whether you’re a first-time or experienced landlord, with a single or portfolio investment, as a private investor or a limited company, we can help to simplify the process and match the right multi-unit freehold property mortgage finance to your needs. For valuable market insight and to help secure short-term finance, a multi-unit freehold block mortgage or remortgage, call our experts on 01603 851534 or email [email protected].
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