Landlords

Demand for HMOs sees 150% year on year rise

Warren Lewis
|
28th July 2016
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"Many standard properties can be successfully converted to HMOs with the introduction of C4 building regulations"

A new report reveals that investors have an increased appetite for homes converted into HMOs, catering for either students or young professionals, to boost rental income. Multi-Let UK has seen a 150% year on year rise in investors purchasing multi-lets and HMOs.

Multi-Let’s sister company Portfolio-Builder.co.uk, has also seen a 300% year on year rise in investors joining a paid waiting list for the acquisition and refurbishment of HMO properties.

Buy-to-let landlords who will be hit by the incoming tax changes and rises, the new stamp duty rules and a tightening of mortgage availability, will see their profits eroded. For many landlords in London and the South East, the numbers simply do not add up for ‘vanilla’, conventional property lets.

Daniel Hill, MD of Multi-Let UK, suggests that letting one property to multiple tenants can boost overall rental incomes: “Experienced investors are recognising the opportunity to raise the monthly rent earned from a property by housing multiple occupants, all of whom pay rent separately.

The tax hikes have forced landlords and investors to review their portfolios and look at ways to boost rental income and protect profits. The beauty of HMOs is that the rent does not need to be raised because the profitability of multiple tenants is much higher than comparable, standard buy-to-let property.  Usually, landlords rent a property on the basis that one person or household is responsible for paying the rent, even where there may be a family of five residing in the property.

HMOs are more complex to manage as they can require licenses and generally need more maintenance and repair.  Despite this, they can be very profitable.  For example, a three-bedroomed, single let property in the Midlands may typically achieve a gross rent of £650 per calendar month (pcm) for a family.  It is usual that, once converted, the gross rent on the same property will exceed £2,000 pcm as HMO.  This represents a significant profit opportunity for buy-to-let investors who have the required expertise to generate sustainable returns in this increasingly competitive market.

Many standard properties can be successfully converted to HMOs with the introduction of C4 building regulations.  If a high quality refurbishment is undertaken, the property can attract working professionals in the right location, who are prepared to pay more for a shared property, with a superior finish.  Luxury ensuites, large TVs, premium kitchen appliances and furnishings are the type of features that help to generate a high yielding HMO, where the market conditions accommodate.”

Shawbrook Bank has put together the following guidelines on what constitutes an HMO:

· An entire house or flat which is let to three or more tenants who form two or more households and who share a kitchen, bathroom or toilet

· A house which has been converted entirely into bedsits or other non-self-contained accommodation, and which is let to three or more tenants who form two or more households and who share a kitchen, bathroom or toilet

· A converted house which contains one or more flats which are not wholly self-contained (the flat does not contain a kitchen, bathroom and toilet) and which is let to three or more tenants who form two or more households

· A building which is entirely converted into self-contained flats if the conversion did not meet the standards of the 1991 building regulations and more than one third of the flats are let on short-term tenancies

· In order to be an HMO the property must be used as the tenants’ only or main residence and it should be used solely or mainly to house tenants. Properties let to students and migrants will be treated as their only or main residence and the same will be applied to properties which are used as domestic refuges.

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