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HMOs Dominate the Rental Landscape in an Uncertain Property Market

HMOs Dominate the Rental Landscape in an Uncertain Property Market
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin07 Nov 2022

While inflation, interest rates and the inevitable effect on rental prices are making an economic impact, the market share of HMOs appears to have grown, signalling an increasing interest from professional landlords looking to maximise their incomes.

Our recent studies show that the current HMO market is worth £25 billion based on existing property values.

London multi-tenant buildings unsurprisingly top the tables as the most valuable rental portfolio assets.

Where in the UK Are HMOs Most Popular?

Regional divides are the norm in the property market, demonstrating variances such as demand for student and professional housing, the concentration of independent landlords, and the market share of private vs public sector tenancies.

The Revolution Finance Brokers team has unpicked the data and found that 55,849 existing HMO properties are available on the English rental market.

With an average value of £464,546, that translates into a market value of £25.94 billion - somewhere around 1.5% of the overall UK sector, with all buy-to-lets valued at roughly £1.7 trillion.

Almost a quarter of all English HMOs are found in London, where premium property prices create an obstacle for first-time buyers. Residents, overseas visitors and commuting professionals are far more likely to rent accommodation for short-term or limited use.

London has 13,528 rental properties categorised as HMOs, the highest concentration across England.

Portfolio landlords need to pay significantly more to invest in an HMO in the capital, with an average market value of £826,209. Still, the rental returns and continual demand justify the £11.2 billion market value.

Investing in an HMO Outside of London

Looking further afield, three specific regions report significant interest in HMO rental opportunities, with a subsequent rise in landlord investments.

The East Midlands is the second most popular HMO location, with 10,737 properties comprising 19% of the English housing stock.

Average property values in this region mean that an HMO is bought for, typically, around £274,126 - or 33% of the cost of a similar property in London. Landlords with limited capital or looking for optimal yields against their investment select areas with this ideal combination of high demand, high yields and low property values.

The total market stock in the East Midlands is around £2.9 billion, but there is a contrast between available rental incomes and market share based on property purchase prices.

Other standout areas include the South West and East, respectively, the second and third areas when ranked for density of HMOs as a proportion of general housing stock.

HMO properties in the South West are worth £3.8 billion, compared to £3.3 billion in the South East, showcasing areas with ongoing demand due to employment opportunities, business hubs and educational facilities.

UK Regions With the Smallest HMO Markets

Whenever we consider averages and statistics, it is helpful to evaluate places where the opposite trend occurs - in this case, the North East.

Among the English regions, this area has the lowest proportion of HMO properties against other types of residential homes, with just 715.

As a proportion, that means the North East accounts for only 1.3% of the national HMO market value but is also one of the most affordable regions with an average HMO selling for just £263,024.

Future Predictions for HMO Rental Property Investments

Changes to licensing rules, regulations and tax allowances mean that HMO landlords are subject to greater scrutiny - but many of the new requirements relate to tenant welfare, safety and protection from unscrupulous landlords.

While quality landlords may need to contribute cost and effort in ensuring each of their portfolio properties is fully compliant, the long-term prospects are positive.

It may be that HMO investors decide to turn their attention elsewhere, which could be detrimental to the rental market, leaving tenants exposed to substandard accommodation with a lack of availability elsewhere.

However, as yet, that does not seem to be happening. HMO landlords are rising to the challenge by advocating for best practise standards in terms of rental property quality, affordable rental pricing and excellent tenant services.

This investment has bolstered the strength of the overall HMO portfolio value and share of the UK rental property market.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.