HMOs are becoming more popular among landlords as many turn to them as a ‘surer bet’ than other types of rental property in a time of economic uncertainty, it has been claimed.

As LandlordZONE has reported recently, HMOs offer much higher margins than properties for families or couples even though the higher regulatory and admin requirements – such as rent collection, licencing and fire detection and prevention equipment – make them harder and more expensive to operate.

Lender Shawbrook bank says HMOs made up 27% of all its business in both 2022 and 2023 but this has already risen to 34% in 2024.

The lender reports that while some landlords are diversifying their portfolios, there has also been a rise in HMO business from non-portfolio landlords.

Pandemic

As investors have dealt with years of challenges stemming from the pandemic and economic uncertainty, HMOs are proving to be a sound strategy, claims director, Daryl Norkett (pictured).

“HMO rental yields are more easily able to [accommodate] mortgage lending in a higher interest rate environment, and the regular turnover of tenants allows landlords to stay on track with market rents,” he says.

Recent research revealed that the average HMO charges a monthly rent of £593 per room, or £2,372 per month if converted for four occupants.

Therefore, the average yield from a four-bed HMO is 8.1% - significantly higher than the 4.4% generated by a regular rental property.

The option to reconfigure properties and the ability to turn lower yielding single lets into higher yielding HMOs has clearly been a strong draw over the past year or so, adds Norkett.

Main image credit: Relorooms.