There's plenty of business, but advisers need to focus on the market
The HMO market is thriving and offers a wealth of business opportunities for brokers who are keen to enter it, but they should make it their specialty rather than trying to advise on it as part of a range of mortgage types. That’s the view of specialist mortgage broker Aron Engel (pictured), who’s an expert in house in multiple occupation and multi-unit finance.
Engel, from DAS Finance, based in Southend-on-Sea, suggests that the market, while booming, has become so complicated by regulation that it’s impossible to properly keep across it while also offering advice on other mortgages. He notes, too, a move by portfolio landlords, towards HMO and self-commercial properties, as they try to meet the costs of a higher rate environment.
“HMO has become manic since the higher rates environment came in,” Engel told Mortgage Introducer. “We've seen a lot of landlords who didn't have HMO in their portfolios suddenly looking to get some because of the higher return they need. When the rate environment was 3%, you had the margin. When the rate is 5-6%, all of the rent goes straight to the mortgage lender. Suddenly it became a hurdle to keep properties with low yields. A lot of people didn’t used to like semi-commercial, with an office on the ground floor and a flat above, for example, but now the yield is much better. There's good deals around, so there's been a shift.”
Engel offered some sage advice for those mortgage professionals who are curious about the market. “There is a lot of business, if a broker wants to come in, but they should be focused on what they want to do,” he said. “The HMO market is getting so over regulated. There are so many regulations, as well as HMO licencing, that you need to be aware of - even the experienced struggle. Things change so quickly every day with different lenders, different regulations, different values.
“Being a broker, you need to be good and specialise in one thing. Brokers who are doing residential mortgages, complicated income, adverse credit, HMOs, commercial, and selling insurance, and this and that, I don't see how these people can make it work. I try to focus on the things that I do well. Anything, that I don't do well, I let it go, because it's very difficult to be good at everything - and that's why I think I have been successful.”
Read more: Brokers on current mortgage market trends
Will portfolio landlords make a quick exit?
Professional portfolio landlords won’t quit the market, despite the regulation challenges they face, Engel believes. “This has been the biggest threat for the landlords we deal with,” he said. “But they are professional, they have set up proper offices, they have good management and teams in place. Of course, they want a bigger margin when there are bigger risks, but they're not quitting anytime soon. They're here to stay. The seasoned landlords know what they're doing and they know how to attack each threat. They’re making sure and reviewing what they buy and if it's still viable, and that's where we come in. With HMO and multi-unit properties, there are so many ways how you can structure a deal, and that’s where we have become so good. So we're involved a lot in splitting titles, and creating new leaseholds - very much in the specialist space.”
Engel urges the government to rethink its approach to regulation around rental properties, especially given the UK’s housing crisis. “They are making life difficult and they're not helping anyone because there is such a big need,” he said. “The reality is that there isn't enough housing – there’s a huge need. These HMOs get filled up in five minutes. My clients finish a project and it's full. When somebody leaves, they have another one coming in. So, the proof is in the pudding - this housing is needed. We need the buy-to-let market and we need these properties available to rent. And also with the planning - the red tape and the wasted money on so many applications, which landlords have to win by appeal, it's a waste of time and money.”
Engel believes that there is a perception of landlords that isn’t fair. “The problem is that there is some sort of a picture painted where landlords are always seen as bad and greedy,” he observed. “The reality is, for most landlords, it’s part of their investment, part of their retirement, an investment they want to make a return on. It's a lot of work to buy property, get the money, and it's not something that anybody can do. There's a lot of work involved and it's not just easy money.”
