Welcome to our Broker Bi-monthly Newsletter! I’m Kay Richardson, Business Development Manager at Molo. In this edition, we’ll explore the buzz surrounding House of Multiple Occupation (HMO) rentals and uncover the reasons behind their current popularity in the real estate scene.
Did you know that the rental sector is the second-largest tenure in the UK, accounting for around 4.5 million households in England alone? Of those, about 497,000 were classified as “HMOs” in 2018, a trend that continues upward.
By the end of 2019, standard buy-to-let grew at a modest 0.3%. However, HMOs rose from 8.6% to 9.6% as demand for multiple-occupation homes increased among landlords and new investors.
The UK, and larger cities in particular, are seeing the size of a typical household decline as the overall population grows. This combination is driving increased demand for HMOs over single-room rentals.
Why do landlords love HMOs?
In short, they like the rent. Or, more importantly, the yields they make on the rent. Capital growth and yields are the driving factors for many landlords, and HMOs can provide higher yields than regular rentals. In fact, rental yields can be up to three times higher with HMO properties.
On top of that, landlords are less likely to suffer void periods. If one tenant moves out of the property, you still have other tenanted rooms, unlike a traditional rental, where a tenant leaving leaves the property empty. Consequently, landlords continue to see cash flow, even if one of the rooms sits empty.
HMOs also have less exposure to arrears. Multiple tenants mean landlords still receive income even if one tenant falls behind. More of the costs may also be tax-deductible for HMO properties.
The importance of education
Renting out HMOs comes with more responsibility than renting single-let properties. And so, investors need sound advice to help them make the right decision. There is more legislation involved, and landlords should consider that.
They should know the difference between an HMO and a large HMO, and whether there are fees to pay and licenses to obtain. Not all properties qualify as “HMOs” either. This could reduce the number of suitable houses in an area.
Buying HMO properties can also be more challenging if a mortgage is required. That’s because there are fewer options for raising mortgages against HMOs, so landlords will need extra help finding a lender willing to support them on their buy-to-let journey.
Molo and HMOs
We are happy to lend on HMO properties to landlords who have 12 months’ experience. Investors can borrow on HMO homes with up to six bedrooms and get a loan-to-value of up to 75% of the property’s price.
A licence may be required and is mandatory for homes with five or more bedrooms. As part of the lending process, we will also need to physically evaluate the HMO property.
Our five-year fixed deals offer a rate of 3.74 per cent, meaning landlords will benefit from a competitive rate when borrowing from Molo. So, if you have clients looking for their next HMO investment, get in touch for some of the most competitive rates on the market.
Our role is to support borrowers as they navigate these opportunities with personalised underwriting, market insights, and agile solutions. At Connect, we believe mortgage advisers have a vital role in shaping this next chapter of the housing market.
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Thank you for reading our publication on “Broker Bi-Monthly | Is There A HMO Boom?” Stay “Connect“-ed for more updates soon!