Are HMOs the way forward?

By Paul Brett, managing director of intermediaries at Landbay

Renting a property to a group of individuals, as opposed to a single person or family, can raise yields by an estimated two to three percentage points. Otherwise known as houses in multiple occupation (HMO), this is a market segment that is becoming increasingly popular in today’s new world of buy-to-let. Landlords have had a job on their hands coming to terms with recent tax and regulatory reform, leading many to review their portfolios; HMOs have been identified as a way to boost rental income and protect profits.

The demand for this type of property from tenants is definitely there. The UK is facing a chronic housing shortage and many tenants, unable to afford one-bedroom flats, are looking for multi-share rental options as a way to cut costs while they save for their own property. The English Housing Survey 2015/16 reported that 46% of 25 to 34-year-olds are renting – almost double that of 10 years ago. This, combined with stagnant wage growth and rising inflation, will go a long way to ensure there is a steady yield-boosting demand for HMOs for years to come.

Landlords are commercially-minded people, so it is only natural they will gravitate towards the potential of higher profits. However, before jumping straight in it is critical that prospective HMO landlords think their decision through, considering the additional work and expense against the incremental profit growth they’d be likely to make.

For example, there is the need for licensing, a likely higher tenant turnover and the additional regulations with which to comply. In speaking to landlords who are considering entering this part of the buy-to-let market, brokers should ensure they are well aware of the challenges they may face.

Letting one property to multiple tenants does come with its complexities, but that doesn’t mean that the lending criteria always needs to; especially when managed by a specialist lender. Landbay has recently launched a new range of buy-to-let products specifically designed for landlords investing in HMOs, aiming to make the entire process simpler for any broker with a HMO case to place. As we lend on HMOs of up to 10 beds, we strive to make what can sometimes be a complicated property type to finance, easy.