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Buy To Let In The Social Housing Sector

Some successful buy-to-let landlords are better at perceiving value in a property than what first meets the eye. Take the matter of buy to let social housing; such investors may purposely include several such properties in their portfolios. Others are prejudiced against social housing and DSS tenants. That prejudice may be causing them to lose out on opportunities, as we discuss in this article.

One immediate advantage with buy-to-let social housing is that you get high yields because you can let individual rooms. Barely two years ago, mortgage brokers were reported to have said that single private tenants could give you a yield of 11.1 per cent on your buy to let investment, while tenants under housing benefit were giving their private landlords as much as 14.3 per cent yield.

Because of the possibility of multiple occupancies in buy-to-let social housing properties, higher rental incomes can be expected. On the other hand, social housing properties are normally cheaper due to their less favourable locations or lower quality, thus your investment is usually lower. The combination of these two factors allows you to make more profitable use of lower quality properties and to obtain higher returns on investment.

Another advantage with buy-to-let social housing is that the rent for social housing is guaranteed by the local councils, which means you are assured of collection on the rentals due to you. In some instances, the council's guarantee may extend to damages that the tenant may inflict on your property. The council also arranges for the rent to be paid directly into your bank.

In addition, you may be able to save the fee you would normally pay to a letting agency. When local councils look for accommodation, they use registers and will not charge a fee to the landlord for finding tenants. When you use a letting agency to find a tenant for your buy to let, you may be charged up to 15 per cent of your annual rental income, plus VAT, by the agency.

Social housing also provides a more stable source of rent, since the tenants are likely to stay for longer terms, unlike students or younger single tenants who generally move around a lot. This means there will be fewer void periods for buy to let social housing.

Nevertheless, some landlords are wary of social housing because rental payments are usually in arrears. The tenant or the council may be able provide the deposit and even the first month's rent, but the subsequent rentals could arrive months behind. There may also be complications in regard to rent collection. If the housing benefit is paid to the tenant, you would need to collect from the tenant (who, in some but not all cases, may spend it before paying the rent to you). If paid direct to you and the council-approved benefit is less than the agreed rent, you still have to collect from the tenant, who may not be willing to pay you anything in the belief that the council is covering the full rent.

Many banks and building societies are hesitant about financing buy-to-let social housing landlords. They see higher lending risks in the housing benefits sector. The traditional view is that social housing tenants have poor credit history or will not act responsibly in taking care of the rented property. Recent requirements for the Homes for Multiple Occupancy (HMO) licence may also have complicated things, and many lenders are still formulating their position and lending criteria on HMO-affected properties.

However, while it is difficult to obtain financing for this social housing tenanted properties, there are lenders who provide products for this sector, albeit these are priced higher than the mainstream mortgage products for buy to let properties. Specialist brokers can match you with specialist lenders if you wish. You should also know that specialist lenders may prefer those landlords with a portfolio of properties, as they can demonstrate that they are experienced landlords.

If you would like a free mortgage quote for buy to let investments in the social housing sector, please complete the simple form on this page and our broker partner will contact you shortly to discuss the best mortgage solution for you.