The Intermediary – March 2025 - Flipbook - Page 58
BUY-TO-LET
Opinion
Interest in HMOs is
not going anywhere
H
ouses in multiple
occupation (HMOs),
and to a lesser
degree, multi-unit
freehold blocks
(MUFBs) remain
a core element of UK housing stock,
and in recent years many existing
landlords have looked closer at this
sector, particularly in a period where
tenant numbers have risen and multitenanted properties have become
much more in demand.
Interestingly – and perhaps quite
surprisingly, given the disconnect
between tenant demand and supply
in the private rental sector (PRS) – the
last figures we have from the Office
for National Statistics (ONS) back
in February 2024 revealed that the
number of HMOs in the UK (476,076)
was down 9.5% from 2018.
Now, there are many potential
reasons for this, not least in terms
of the potential for HMOs to mean
greater costs for the landlord in
terms of upkeep, sourcing tenants,
local authorisation and registration,
mortgage costs, etcetera. However,
from the conversations we have with
both advisers and landlords, there is a
growing interest in HMO business and
transactions, particularly due to the
potential for greater rental yields.
Our own recent Fleet Mortgages
Rental Barometer continues to show
rental yields across England and Wales
performing strongly. For Q4 2024, the
average yield across the regions we
lend in was 7.4%, but this was only up
0.6% on the previous year, and even
with demand still outstripping supply,
there is a general feeling that yields are
less inclined to outperform year-onyear going forward.
This may leave some landlords
looking at their options when it comes
to purchasing and holding properties
that are going to deliver a stronger
yield. This once again leads us to
HMOs, because of course, you have
multiple tenants within a property on
58
The Intermediary | March 2025
separate tenancy agreements, which
can oen deliver a much higher yield
than, say, offering the same property
to a family.
That being the case, we’ve not just
seen landlords looking to add HMO
properties to their overall portfolios
– particularly relevant in university
towns and cities, but also increasingly
for the professional market where
younger people are much more likely
to live together in this way – but we’ve
also seen landlords seeking to convert
their existing properties into HMOs.
However, for those who have
never prepared, offered, or indeed
purchased, an HMO before, the
move can seem a lile daunting.
There are many additional factors
to take into account, such as dealing
with those multiple tenants, what
should be included in the shared
facilities, stricter regulations, and the
additional safety and maintenance
standards required to meet the terms
of any license.
Keeping on top
Of course, we can’t discount the
different financing options, pricing,
rates, and criteria that oen come
with HMOs or MUFBs, from different
lenders. As advisers, it’s clearly
important to be on top of these,
particularly in terms of your client’s
understanding of the differences with
HMOs, but also with regards to the
different – oen more costly – pricing
that such mortgages tend to have.
If this all sounds like it could put
off a landlord – especially those
considering the HMO market for the
first time – then there are means by
which you as the adviser can make
things less complicated for them,
while at the same time also potentially
delivering them cost savings, both
upfront and over the term of the
mortgage. You might wish to ask the
landlord, ‘When is your HMO not
an HMO?’ I don’t mean in the sense
of the property itself, but in terms
WES REGIS
is national account manager
at Fleet Mortgages
of whether it meets the criteria of an
HMO for mortgage purposes.
For instance, at Fleet we can look
to accommodate ‘HMO’ cases where
there are four tenants or fewer
in a property, but which has, for
example, locks on the doors and
separate tenancy agreements, not on
our specific HMO products but on
our standard range – providing that
no HMO license is required for the
current or intended occupancy.
This would mean lower rates,
but also the ability to secure free or
discounted valuations, which are not
available on our HMO product range,
providing an upfront saving and
cheaper financing over the term.
It’s important for the landlord to
know that this doesn’t make their
property any less of a HMO in terms
of the wider requirements that
come with offering such properties,
but it simply means that – for their
mortgage purposes – they may have
other, more standard, options beyond
the specific HMO or MUFB range,
which tend to be priced higher.
Overall, it seems likely that more
portfolio landlords will, at the very
least, be looking at the options
available to them in the HMO space.
To that end, it might not need
a specific HMO mortgage option,
as such, but could potentially be
accommodated elsewhere depending
on number of tenants or the property
set-up. If, however, an HMO product
is definitely required, then there are
a growing number of HMO mortgage
options available.
Landlords are increasingly wellcatered for in this space, and we
anticipate the growth in interest and
activity for HMOs is not going away
anytime soon. ●
