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Maximising the potential of HMOs and mixed-use properties
It's no secret that the modern UK buy to let market is constantly evolving. Landlords increasingly look beyond traditional property types to maximise rental yields and diversify their portfolios.
Two asset classes offering significant opportunities in this sector are Houses in Multiple Occupation (HMOs) and mixed-use properties. These investments deliver strong returns but can require specialist financing and expert guidance, marking them as an essential focal point for the intermediary market in 2025 and beyond.
The HMO sector continues to generate some of the highest rental yields in the buy to let market. According to the Pegasus Insight Landlord Trends Report for Q4 2024, landlords investing in HMOs achieve an average yield of 7.0%. Similarly, those who own a whole block of individual flats (7.1%) and landlords with 11+ properties (7.1%) also see strong profitability.
HMOs are expected to lead rental growth over the coming months. Landlords anticipate average rental increases of 7.0% for HMO properties, the highest across all buy to let property types. Notably, 39% of HMO landlords cited rent increases to reflect upgrades and improvements to their properties, reinforcing the trend towards higher-quality shared accommodation.
However, HMO financing has added complexity, including licensing requirements, fire safety standards, and planning permissions. The advice process is critical in helping landlords secure financing through specialist lenders who understand the nuances of HMO underwriting.
Beyond HMOs, mixed-use properties are also becoming increasingly attractive investment options. With limited housing stock and ongoing affordability challenges, landlords and developers seek versatile investment opportunities that blend residential and commercial elements.
A recent Knight Frank report, From No Use to Mixed-Use, highlights how London's property market has moved from single-use developments to multi-functional spaces that combine residential, retail, and office components. Major regeneration projects such as Battersea Power Station and Canary Wharf have successfully adapted to this trend, and upcoming projects in other areas are set to continue this shift.
For landlords, mixed-use properties offer several advantages:
- Diversified income streams – Combining residential and commercial rental yields enhances stability.
- Reduced void periods – Strong demand for live-work spaces improves occupancy rates.
- Lending flexibility – Specialist lenders are increasingly adapting their criteria to accommodate these investments.
Recognising the increasing demand for non-standard buy to let financing, we have recently introduced our Property Plus and HMO Plus product ranges to support landlords investing in more complex property types. This expansion further strengthens our proposition, offering more solutions for landlords with properties that do not meet traditional lending criteria.
Supported by a tailored underwriting process, we can now consider HMOs and a broader range of semi-commercial properties, including flats above shops, locations near business units, investor-only areas, and those affected by postcode concentration rules.
By partnering with lenders who fully understand the complexities of HMO and mixed-use lending, intermediaries can offer greater access to solutions that meet landlords' diverse needs, enabling them to navigate complex cases confidently. Whether supporting first-time investors or seasoned landlords, the goal remains: empowering clients to secure the proper solutions in a dynamic and progressive sector.
References:
https://www.knightfrank.com/research/article/2022-02-03-from-no-use-to-mixeduse
*This article was originally published on The Intermediary
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