Your Business and Industry

HMO yields and costs year end 2021

Every quarter, we review current yields and costs of common and specialist property types within the buy to let market for mortgage intermediaries.

When looking to maximise rental yields, a growing number of landlords are carefully scrutinising the pros and cons attached to HMOs. The appeal of this investment type was highlighted in Q4 2021 Landlord Panel research from BVA BDRC. Data within this report outlined that HMO lettings currently achieve the strongest yields at 7.5%. Linked to this, students provide the strongest yield of any tenant type at 7.4%. The next highest yield was said to be multi-unit block flats at 7% with the lowest yield coming from individual flats (5.4%).

This represents a strong figure but landlords do need to take into account the associated costs attached to such properties. As illustrated in the research, landlords with HMOs are suggested to spend an average of 24% of their income on maintenance, compared to 20% for non-HMOs. However, spend for both property types has declined marginally Y-o-Y (by 1.1% and 0.9% respectively) and is also down substantially from pre-pandemic levels (by 4.2% and 3.5% respectively).

This is where landlords’ own calculations and the benefit of good, professional advice can help demonstrate how yields can stack up against potential outgoings compared to other property types.

From a product perspective, a wider selection of competitive mortgages for HMOs and MUBs are emerging with differing fee options which allow landlords to better control upfront and ongoing cost implications.

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This also signifies good news for brokers as these types of cases tend to require more of the aforementioned specialist advice due to an increased level of complexity and legislation.

Also evident within this, is the need for brokers to establish relationships with lenders who have the underwriting capabilities to assess such cases on an individual basis and the product range to meet a variety of landlord needs.

So, if you’re looking to help more of your BTL clients to explore a wider range of HMO options, then why not speak to the Foundation team to learn more about our extensive offering.

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