Helping portfolio landlords diversify – Morris

There’s no denying that economic fluctuations, regulatory shifts, and increased tax burdens have created challenges for landlords in recent years. However, history shows that landlords are nothing if not adaptable.

Time and again, they adjust their strategies to navigate changing market conditions – this is as true now as it was when CHL Mortgages for Intermediaries launched in the 1990s. 

The rise in interest rates between 2022 and 2024 impacted landlords’ borrowing capacity. But that has not meant that landlords have stopped investing. Quite the contrary, it appears they’re recalibrating and adjusting both the amount they spend and the assets they target in order to remain active in the market. 

As a result, diversification has been a significant trend in the BTL space over the past year, and it’s likely to remain a hot topic in 2025 as portfolio landlords look to different types of property to mitigate risk and maintain profitability. 

It’s important, therefore, that brokers and lenders play a role in helping their clients as they identify the best opportunities that the market is currently producing.

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Exploring different property types 

The traditional BTL model is fairly straightforward: a landlord purchases a property, obtains the necessary licences, ensures compliance with private rental sector regulations, and is then able to begin collecting rental income. Profitability, in this case, depends on rental earnings exceeding mortgage payments and other associated costs, while there’s also the long-term capital growth should the asset increase in value.

However, the last four years have seen significant rises in mortgage costs. At the same time, the cost-of-living crisis brought the affordability of rent under the microscope, putting a squeeze on landlords’ yields. 

As a result, what we’ve experienced here at CHL Mortgages for Intermediaries is an increase in the number of landlords exploring the opportunities presented by houses in multiple occupation (HMOs). Another strategy gaining traction is the conversion of larger properties into multiple self-contained flats, also known as multi-unit freehold blocks (MUFBs).

This approach allows landlords to optimise rental income while catering to the high-demand rental homes. 

Meanwhile, other landlords are consolidating multiple flats back into larger single units, in turn meeting the demand for larger homes among other renters. This comes with the added benefit of premium rental prices, as they can attract tenants willing to pay more for the additional space. 

These diversification strategies help landlords balance rental income with affordability concerns, reducing the need for excessive rent increases while maintaining profitability. Essentially, we’re seeing fewer landlords put all their eggs into one basket, but rather they’re building portfolios that incorporate a blend of different property types. 

However, this trend towards diversified portfolios can bring with it added complexity from a financing perspective. 

Supporting landlords as they diversify 

Portfolio landlords often require more bespoke, tailored financial solutions compared to an average BTL investor or homebuyer.

With mainstream lenders tightening their criteria in recent years, portfolio landlords often do not fit into the strict parameters required to access high street finance, particularly if they’re looking to convert or renovate their purchase or need to get licences approved. This is because there may not be a direct exit that is immediately clear to lenders, which can take a case beyond their risk appetite.

Therefore, brokers must ensure they effectively communicate how a landlord plans to use a property to lenders and demonstrate how the borrower will be able to exit their loans. 

To help with this, brokers should look to build strong relationships with lenders that understand the nuances behind what the buyer is doing and have experience in navigating the challenges that the perennially fluctuating BTL landscape can present. Indeed, any acquisition that’s aimed at diversification presents unique complexities that require expertise and flexibility. 

Fortunately, the specialist finance sector is well-positioned to support brokers and landlords through these complexities and take on cases, regardless of their complexity. This is something that we are committed to at CHL Mortgages, and we’re doubling down on offering brokers the tools and tailored mortgage products their clients will need to successfully manage their portfolios in the coming months. 

If lenders and brokers can work together, there’s every reason for optimism for landlords looking to diversify and protect the profitability of their portfolios.

Together, we can ensure the BTL market continues to remain resilient.