HMO’s – the next Big Thing?

One of the largest buy-to-let mortgage providers, Paragon, has reported that of the landlords planning to purchase property in the next 12 months, around 31% want to buy a House in Multiple Occupation (HMO).

This has increased from around 13% of landlords just three months ago. This is the highest level since 2017 and indicates an increased desire  for portfolio landlords to purchase. 25% of landlords said they plan to acquire flats, with 18% looking at terraced houses.

As we have said many times in this blog, Houses in Multiple Occupation are popular with portfolio landlords as they offer a higher yield, however, they are more complex to manage.

Demand exceeds Supply

We know that the private rented sector has an imbalance of supply and demand and the increasing levels of tenant demand needs to be addressed. The forecasts seem to suggest that it will be the portfolio landlords that will primarily drive that growth.

As we have also said many times, the higher rewards that HMO’s can provide comes with higher risk in terms of legislation and local authority licencing.

Just recently, it was reported that officers from the local council in Slough conducted dawn raids on unsuspecting tenants in properties that were owned by unlicensed landlords. I’m sure that the tenants were not exactly over the moon to be woken up at 5:00am, but it does show that licencing and regulation is finally being taken more and more seriously by the authorities.

Extra Government Cash

Earlier this month it was announced that 100 local councils would share an additional £4m in Government funding to help enforce the regulations. There are already a couple of examples on how this money is to be spent; 100 new enforcement officers will be trained across Yorkshire and Humberside and a Special Operations Unit will be set up in Northampton.

So, should this put landlord off from investing in HMO’s?

Absolutely not!

If the regulations are adhered to, licencing requirements are met and your property is presented to a good standard, you will have no problems in letting it out and reaping those higher rental return rewards.

The Student Trend

The trend will follow Student accommodation over the last few years. There was a time when students would rent anything so landlords would not make the effort to improve the standard of student accommodation. However, over time, students wanted better quality properties and amenities which pushed up the overall quality of student accommodation and left landlords unwilling to follow suit with empty properties that were costing them money as void periods increased.

HMO’s will go the same way. Poor HMO landlords are now suffering a pincer movement – they have increased enforcement clamping down on poor quality, unlicensed and illegal properties plus more discerning tenants looking for better quality accommodation.

The Cream will Rise…

The better HMO landlords offering good quality, compliant properties will achieve fantastic occupancy levels and excellent rental returns.

We run regular HMO seminars to help landlords understand the pro’s and con’s of letting shared accommodation.

Please contact James or Simon on 01332 300172 to book your place!