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HMO yields back on top but regional variances significant
For landlords, many have gone back to basics in terms of delving deeper into their yield, void and cost calculations. When it comes to yield, houses in multiple occupation (HMOs) have historically topped these charts and proved an attractive option for the more hands-on landlords.
This yield equation was evident in the most recent BVA BDRC Landlord Panel research for Q4 2022 which outlined that HMO properties went back to the top spot of the rental yield table. These were reported to be offering the strongest yield by property type, at 6.4% for the quarter, followed by multi-unit blocks at 6.2%.
Furthermore, the research also suggests that the proportion of gross rental income spent on maintenance and running costs of HMOs hit a low in Q4 at 26% from the high of 29% experienced in both Q1 and Q3. For
Demand remains strong amongst landlords and tenants, meaning that this remains an area of lending in which we at Foundation Home Loans continue to see strong levels of business. Although, there is also an argument to be made that this is more down to our approach – we are one of only a few lenders which don’t load ICRs on such property types – rather than currently being the industry norm.
With such strong yields, albeit with additional costs actuated, this means that the HMO market is flourishing right? Right? It seems that location is critical for this particular market.
As outlined in recent market analysis by Sirius Property Finance, while regulations have led to increased tenant welfare, these have also contributed to a decline in HMO numbers.
As highlighted in the aforementioned Sirius analysis, this has led to the overall number of HMOs falling by -2.4% in the past year, but this drop is dwarfed by some incredible regional declines. The East Midlands was suggested to have recorded an annual HMO stock decline of -26.1%, the North East has seen HMO stock levels drop by 15.8%, while in the South East numbers are down -6.7%. However, these falls are not universal across all regions. Indeed, the likes of the West Midlands (16.9%) and Yorkshire & Humber (11.2%) recorded impressive annual stock growth over the past year.
There are also plenty of attractive options from an HMO product perspective. Especially from those lenders who are highly experienced in this type of lending, who are finely attuned to the needs of such landlords and have the underwriting capabilities to match their ever-changing needs.
Grant Hendry is Director of Sales at Foundation Home Loans
*This article was originally published on Financial Reporter
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