I’ve spoken before about the challenges that property investors are facing.How they need to consider diversifying their portfolio, think about the best ways to maximize their assets and even consider new areas to invest in. For me, Bristol is still a great city to live, work and invest in (I might be a bit biased as I was born here!). But as a Bristol mortgage advisor helping clients in the area (although we have now moved to Devon, we still help lots of people here), I have a unique perspective. Not only do we help investors in Devon and Bristol, but up and down the country too. This means we see what is happening in lots of different towns and cities so we might be able to share with you some of this knowledge. Either way, as Bristol mortgage advisors, we are seeing some great things in Bristol.
Bristol mortgage advisor opinion:
The demand for homes and rental properties is only going to increase. The population in Bristol is continuing to grow strongly. The economy is good with a high rate of employment and its economy is set to outpace most other places in the UK. Approximately 29% of the population in Bristol rent and this trend is set to increase. Click To TweetOf course, Bristol has always been geographically well placed, close to London, the Midlands the South West and internationally with its own airport. And let’s not forget that it also has two great universities which provide a highly skilled and educated workforce with a thriving technology sector. A dynamic city needs a dynamic, young working population and Bristol has seen the number of young people moving to the city sore by 40% between 2002 -2017. And despite higher than average house prices this hasn’t put many of these young people off as they tend to rent themselves. They are clearly drawn to Bristol for the job opportunities, city living and cultural pursuits.
The Bristol startup scene:
With the Bristol and Bath Science Park and numerous co-working spaces throughout the city, Bristol really caters for the entrepreneurial spirit and start-up scene. In fact, Bristol was recently rated in the top 10 cities in Europe for technology by CBRE.
Notwithstanding this, Bristol is also actively looking to evolve and develop itself as a city to encourage enterprise and city living. An example of this can be demonstrated with the Bristol Temple Quarter project which is aiming to create 22,000 new jobs in this area. This particular project is looking to develop a new urban quarter for people to live, work and study and aims to build on Bristol’s world-class status as a dynamic and exciting city to live and work in.
As a Bristol mortgage advisor we are perfectly positioned to not only help investors but also those people starting a business as we are able to help those wanting a mortgage with only 1 year self emploment behind them. To be honest, if the circumstances are right, it’s even possible to get a mortgage for someone who has less than 1 year self employment! And for those IT contractors (or any contractor for that matter) it’s possible to have even more flexibility!
Bristol mortgage advisor and house prices:
House price growth shouldn’t be the sole driver in deciding where to invest. However, it is clear Bristol is a strong bet! According to the latest figures from Land Registry, the average property price in the City of Bristol is £281,980 which compares to £230,776 for the rest of the UK.
Interestingly over the last 10 years, growth has been particularly strong in Bristol, with average house prices rising a staggering 82%. Click To TweetThis growth has significantly outperformed many other parts of the UK which as a whole has seen growth of 47%.Clearly, this demonstrates that Bristol has been a strong place to invest in property. The question is whether this trend will continue, but based on all the facts, I cannot see why Bristol won’t continue to outperform other areas in the UK.
Bristol mortgage advisor investment strategy:
Should you be considering HMO’s?
As a Bristol mortgage advisor we have seen a lot of client’s buy property to let out on a HMO basis. As you can imagine being a university city there is a strong demand from this market, but let’s not forget about those professioanls (who were once students) who are now working in the city. Whatever market you choose to target, HMO’s offer a great return on onvestment and often outperform a smaller property which lets out on a standard AST (assured shorthold tenancy agreement).
What is an HMO?
An HMO is classified as a house or flat of multiple occupation which is rented to at least 3 people who are not from the same household and who share common facilities such as kitchens and bathrooms. An HMO of any size may need a licence depending on its location and the local authority rules.
You will definitely need a licence if:
- 5 or more people forming more than 1 household
- It has shared facilities such as toilets, bathrooms or kitchens.
- At least one tenant pays rent (or their employer pays it for them).
When is an HMO licence required?
When it comes to licensing, technically speaking the term small HMO’s is incorrect and does not exist as any property with 3 or more people forming more than one household with shared facilities is just classified as an HMO and may or may not need a licence depending on your location.
A large HMO is, however, correct use of terminology and means a property which is rented to at least 5 people forming more than one household with shared facilities. This is classified as a Large HMO and does need a licence.
Do you need planning permission for HMO’s?
In addition to a licence, an HMO may or may not need planning permission. Although the term small HMO is not correct when it comes to licensing, as it is just an HMO or a large HMO. When, however, planning permission is involved then the term small HMO and large HMO is relevant.
For planning purposes, small HMO's (houses and flats) are properties with between 3 to 6 occupiers and are classified as a C4 Class. Click To TweetAgain for planning, large HMO’s are properties with 7 or more occupiers and are classified as Sui Genesis.Generally speaking, you don’t need planning permission to convert a home (classified as C3) into an HMO (classified as C4) for up to 6 unrelated individuals under permitted development rights. However, any particular council can remove these rights by enforcing an Article 4 Direction so depending on your local authority, you may have to apply for planning permission.
Advantages of using a limited company HMO mortgage:
With the tax changes, our investors are increasingly moving their portfolio’s into limited companies which can make it much more tax efficient. However, it doesn’t always make sense to move an existing portfolio into a limited company as there are often unforeseen costs to do so, such as capital gains and stamp duty. So it is always advisable to seek professional advice before doing anything.
However, when it comes to new purchases, it more often than not makes sense to buy through a limited company. We are seeing more and more experienced landlords now looking to buy through limited companies, sometimes also referred to as SPV’s (special purpose vehicles) because of the tax benefits it can bring. However, planning is still important to determine if this is still the right thing for you.
Bristol Mortgage Advisor criteria guide:
If you decided to invest in Bristol and are considering an HMO as an investment strategy it is a good idea to have a chat with a Bristol mortgage advisor (like us). When raising an HMO mortgage, it is important to consider how a lender will assess your application.
HMO mortgage lenders will consider the property, the rental figure, your circumstances, the location and the type of tenants you will be renting to. Are you going to be renting to professionals, students or some other group? Having a clear strategy is not only important to position this with the lender, but it's also vital to decide who you are marketing too. Click To Tweet
One thing to be aware of is that any lender will restrict the borrowing amount based on the loan to value (LTV) which varies from lender to lender. However although the lender might allow you to borrow up to 85% LTV (which means you need 15% deposit and borrow the remaining 85%), the key driving force to how much you can borrow is actually the amount of rental income the property will generate.
The Bristol Mortgage Advisors at Barr Financial are experienced:
It is important to note, like any specialism, it is important to find a mortgage advisor who has experience of HMO mortgages. Click To Tweet At Barr Financial we help clients with HMO mortgages, complex portfolio mortgages, limited company HMO’s and regular buy to lets. The reality is that not every mortgage advisor will have experience of dealing with these more complex types of investment properties and mortgage solutions. But it is really important you find one that does.
Bristol mortgage advisor opinion on gearing!
When assessing an investment it is always important to consider how to maximise the return and investment. Other than improving the property and maximising rent, you can also use debt to leverage your ROI.
Here is an example of 10% ROI – note; no mortgage:
Purchase price £100k
Cash used to purchase £100k
House Price Inflation 10% =£110k
ROI on the initial £100k is 10% (turned a £100k investment into £110k).
Here is an example of 50% ROI – note; with a mortgage:
Purchase price £100k
Cash used to purchase £20k
House Price Inflation 10% = £110k
ROI on the initial £20k is 50% (turned a £20k investment into £30k).
Of course, this doesn’t take into account debt servicing costs, repayment strategy or what your overall investment property plans are. But you can see how by putting less money into a property deal, you can create a higher ROI on your property investment.
Are HMO’s the best property investment strategy in Bristol?
Bristol, like any area, has different investment opportunities and there is no doubt that HMO’s offer a great way to maximise your return. There is a large community of young professionals who want to live, work and rent in Bristol. It is clear this growing demand and needs for quality accommodation for professionals is not going to diminish anytime soon.
What type of business do you want?
But of course, it also comes down to your personal preference of what type of property business you want to run. As a Bristol mortgage advisor we are not going to push you down a particular path that doesn’t suite you, but we are here to help and guide you. There are lots of things to consider and there is no doubt a buy to let which is rented to one household is much easier and maybe the right approach for you. It’s also important to think carefully about the type of property you want to own and manage and of course its location. But there is no doubt, Bristol should be considered whether you are a local investor or somone looking at new areas to invest in.
Experienced investors need to consider diversifying!
I always stress to clients about the need to start thinking about diversifying their horizons. Maybe if they have only invested in buy to lets, they should start considering HMO’s or even other types of property investments. A serious investor now needs to consider every opportunity, which might include property developments, mixed-use, semi-commercial, commercial and industrial properties. Click To Tweet One huge advantage of commercial over residential is the lower stamp duty! Oh, and let’s not forget serviced accommodation (holiday lets) with is perfect for Airbnb. We all love a city escape and if you haven’t noticed there are loads of serviced accommodation properties available to rent on Airbnb or booking.com. The key is to consider every asset class and figuring out how to maximise your return.
Leverage the experience of a good advisor!
If you haven’t got experience in a sector, don’t underestimate how an experienced mortgage advisor near Bristol who has experience of helping lots of different clients with different forms of funding can help. After all, they are seeing what works and what doesn’t work, and of course what will work for a lender. The reality is that if a lender is happy with it, it’s likely to make sense on a commercial business basis, otherwise they wouldn’t do the deal.