More landlords are converting their properties into Houses in Multiple Occupation to increase their yields ahead of the buy-to-let tax changes according to Roma Finance.
The specialist bridging lender funded more conversion cases of this type in 2016 than any previous year.
Despite the cost of converting and licencing the property upping the rental income could help landlords raise further capital in future.
Scott Marshall, managing director at Roma Finance, said: “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 12 months. In this case it made a lot of sense to carry out the conversion.”
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.