Broker Bi-Monthly: Is there a HMO boom?

Welcome to our Broker Bi-monthly Newsletter! I’m Kay Richardson, Business Development Manager at Molo, and this month I’ll be diving into House of Multiple Occupation (HMO) rentals and why they’re the talk of the town right now.

HMO, the stats

Did you know that the rental sector is the second largest tenure in the UK and accounts for around 4.5 million households in England alone? Of those, about 497,000 were classified as “HMOs” in 2018, and the number continues trending upwards.

By the end of 2019, standard buy-to-let grew at a modest 0.3%. However, HMO went from 8.6% to 9.6%, as the appetite for homes of multiple occupation saw an increase for landlords and new investors.

The UK, and larger cities, in particular, are seeing the size of a typical household decline while the overall population expands. This combination is leading to increased demand for HMOs above single-room rentals.


Why do landlords love HMO? 

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, as opposed to a traditional rental, where a tenant leaving equates to an empty property. 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 an income even if one of them falls behind. More of the costs may also be tax-deductible for HMO properties.

The importance of education

Renting out HMO homes comes with more responsibility than single-let properties. And so it’s important for investors to receive great advice that helps them make the right decision. There is more legislation involved, and that’s something landlords should take into consideration.

They should know the difference between HMO and Large HMO, whether there are fees to pay and licenses to obtain. Not all properties qualify as “HMO” 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, and therefore landlords will need extra help finding a lender who is happy to help 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 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 carry out a physical valuation of 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.

Credits: Kay Richardson