Preparation, as much as opportunity

Originally published by The Intermediary

It’s been a particularly active time in the buy-to-let market, with momentum clearly building across the latter part of 2024 and into this year. According to UK Finance, landlord loans totalled £9.6 billion across 52,648 cases in the final three months of last year — that’s a jump of 47.2% by value and 39.2% by case compared to Q4 2023. 

But where are landlords focusing? As our own Q1 2025 Rental Barometer shows, landlords are still responding to strong tenant demand, particularly in areas with attractive yields.  

Yet yields themselves are showing signs of stabilisation, albeit at high levels. While the North East leads with 9.2%, followed by 8.4% in the North West, the year-on-year uplift across England and Wales was just 0.3%. That’s a far cry from the average spikes we saw in 2023 but let’s point out that the average ‘England & Wales’ yield is a construct, and there are clearly higher yields to be had depending on where the property is. 

There’s no denying however that the quest for yield is a continuous process for landlords, and it’s not going to stop now, particularly when the cost of owning investment property continues to rise, along with the regulatory and taxation responsibilities that have to be endured.  

It’s no surprise therefore to see landlords constantly exploring how to improve the performance of their portfolios. For many, that points toward Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs), which have the potential to deliver higher rental yields and stronger income security through multiple tenancies in one property. 

That shift is already visible in our application data and market conversations. But as more investors consider HMOs for the first time, there’s a clear need to support them with guidance – not just on yield potential – but on the technicalities of licencing, planning and finance that underpin this more complex area of the market. 

That’s why we’ve recently launched a new publication, ‘A Guide to HMOs: Licencing, Planning & Article 4,’ to give advisers and their clients the knowledge and confidence to navigate this space. 

The guide covers a wide range of key issues. First, there’s licencing outlining the differences between mandatory, additional and selective licencing schemes — and explains which apply, where, and why. A five-bedroom property in one borough may require only a mandatory licence, while a similar four-bedroom house in another may fall under an additional or selective scheme. Advisers can help landlords check requirements on a case-by-case basis. 

Then there’s planning. The guide explains the distinction between C3, C4 and Sui Generis use classes, and the importance of understanding how these affect the ability to convert a property into an HMO. 

Most notably, it explains how Article 4 Directions restrict permitted development rights. A landlord may assume they can switch from C3 to C4 without issue, but if the property lies within an Article 4 area, full planning consent is required — even for smaller HMOs. 

The guide also covers how to evidence pre-existing HMO use if a property was converted before Article 4 was introduced. Without the right documentation, landlords risk needing retrospective planning approval. This could derail mortgage finance or cause complications during the conveyancing process. 

There’s also technical detail on lesser-known classifications like Section 257 HMOs — converted blocks of flats that fail to meet current building regs and where less than two-thirds of the units are owner-occupied. These fall under additional licencing in some councils and are increasingly on lender’s radars. 

Importantly, the guide also outlines our own lending approach. For example, we’ll often place smaller HMO-type properties — say, four-bedroom houses with locks on bedroom doors and multiple ASTs — on our standard product range if they don’t need a licence.  

That means landlords can access lower rates and, in many cases, free or discounted valuations. Where a full HMO product is needed, we offer lending up to 75% LTV, with properties assessed on a room-by-room rental basis, and accept up to six letting rooms. 

As yields settle into a tighter range, landlords need to be more proactive in shaping their portfolios to secure the returns they want. HMOs and MUFBs aren’t suitable for every client, but for many, they offer a compelling blend of yield potential in order to meet the still-high tenant demand we are witnessing in many areas. That’s especially true in areas with a strong young professional demographic, student population or affordability constraints that make shared accommodation a necessity. 

But success in this sector is as much about preparation as it is about opportunity. Advisers who understand the planning rules, licencing schemes and lender appetite are in the best position to help landlords unlock value without stumbling into unexpected costs or compliance challenges. 

Our ‘Guide to HMOs’ is designed to help you do exactly that — by giving you the tools to talk with authority, ask the right questions, and guide your clients through what can otherwise be a daunting leap into a more complex but rewarding area of property investment. 

If you haven’t downloaded it yet, now’s the time.