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HMO yields remain strong as funding options grow
One of the most consistent property types in delivering the highest yields in recent years has been houses in multiple occupation (HMOs) - but is it still an attractive option?
In a challenging economic environment, many additional questions are being asked when it comes to homeownership aspirations, affordability and what people are demanding from their homes. This is both from a rental and purchase perspective.
For landlords, many have gone back to basics in terms of delving that bit deeper into their yield, void and cost calculations. When focusing on yields, one of the most consistent in delivering the highest yields in recent years has been houses in multiple occupation (HMOs), and this continues to be an attractive option for the more hands-on landlords who have the knowledge and experience to manage differing tenant and property needs.
When analysing these calculations, the Q1 2023 BVA BDRC Landlord Panel research – in conjunction with Foundation Home Loans – found that HMO’s continued to generate the strongest yields of all BTL property types in Q1 at 6%, compared to an overall average rental yield of 5.2%. The next largest yield generator was Multi-Unit Freehold Blocks (MUFB) at 5.6% followed by detached houses, terraced houses and semi-detached houses at 5.3% respectively with individual flats and bungalows both coming in with a 5% yield.
Inevitably, landlords with HMOs continue to spend a higher proportion of gross rental income on upkeep vs. landlords with non-HMOs, with a considerable proportion of this expenditure going towards property upkeep, repairs and maintenance and utilities. (slide 28).
Yields are also likely to differ depending upon the quality of the property, the location and how these costs are controlled, factors which help underline the importance attached to landlords doing their due diligence before entering the HMO arena.
On a positive note, an array of highly competitive HMO options are emerging from a funding perspective. Especially from lenders in the form of Foundation Home Loans 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.
FOR INTERMEDIARIES ONLY
