New research* from Precise Mortgages, the UK’s leading specialist lender**, shows the Houses in Multiple Occupation (HMO) sector is set for further expansion, with more than a fifth of landlords (21%) who are planning to buy over the next year looking to add HMOs to their portfolios.
HMOs are proving to be an attractive proposition in a time of market uncertainty, with HMO landlords achieving the highest average rental yields at 6.3% compared with the market average of 5.5%.
The research shows average rental yields across the market as a whole are at their lowest for nine years, highlighting the attraction of HMOs. Average yields for all property types dropped 0.3% in Q2 from 5.8% in the first quarter of this year and are now at their lowest level since 2010.
The most popular type of property to buy are terraced houses with 50% of landlords planning to buy a terraced property. However, the research also shows 40% of landlords also plan to sell terraced houses in the year ahead. By contrast, just 8% of landlords holding HMOs in their portfolios plan to sell them.
Blocks of flats are also set for growth, with 8% of landlords planning to buy compared with just 5% planning to divest.
Landlords with between 11 and 19 properties are earning the highest average yields at 5.9% with the North West the best area of the UK for yields, earning an average 5.9%. Landlords with 11 or more properties have an average of three different property types in their portfolio.
Alan Cleary, Managing Director of Precise Mortgages, said: “In a time of market uncertainty, HMOs are an attractive option for professional landlords looking to maximise yields. As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets meaning the rental income is more secure if one tenant leaves a void.
“The expansion of the HMO sector underlines how experienced landlords are rebalancing their portfolios. It also demonstrates the opportunity for brokers to work with specialist lenders who have expertise across the widest product set to support clients who are reassessing their portfolios.
“To help landlords explore new opportunities, we’ve extended our top slicing feature across our entire Buy to Let range. It means landlords can now use their surplus HMO income for future property purchases to expand their portfolios. We also offer Refurbishment Buy to Let for works being completed under permitted development rights, provided there are no structural alterations or changes to the footprint of the property. This is a really exciting development as it allows landlords to change the use of a property from a C3 dwelling house to a C4 HMO of up to six bedrooms.”