HMO Sector to Grow as Investors Expand Property Portfolios

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New data released has shown that the HMO sector is likely to grow with over a fifth of landlords planning to expand their portfolio with the addition of an HMO (House in Multiple Occupation).

The HMO sector is proving to be attractive to professional landlords in a time of market uncertainty, with HMO landlords achieving the highest average rental yields at 6.3 per cent compared with the market average of 5.5 per cent.

The research from specialist lender Precise Mortgages shows average rental yields across the market as a whole are at their lowest for nine years, highlighting the attraction of the HMO sector. Average yields for all property types dropped 0.3 per cent in the second quarter from 5.8 per cent in the first quarter of this year and are now at their lowest level since 2010.

Terraced houses are proving to be the most popular choice for buy to let property investors, with 50 per cent of landlords planning to buy a terraced property. However, the research also shows 40 per cent of landlords also plan to sell terraced houses in the year ahead. By contrast, just 8 per cent of landlords holding properties in the HMO sector plan to sell them.

Blocks of flats are also set for growth, with 8 per cent of landlords planning to buy compared with just 5 per cent planning to sell.

Landlords with between 11 and 19 properties are earning the highest average yields at 5.9 per cent with the North West the best area of the UK for yields, earning an average 5.9 per cent. Landlords with 11 or more properties have an average of three different property types in their portfolio.

Managing Director of Precise Mortgages, Alan Cleary, said: ‘In a time of market uncertainty, HMOs are an attractive option for professional landlords looking to maximise yields. As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets meaning the rental income is more secure if one tenant leaves a void.’

He continued: ‘The expansion of the HMO sector underlines how experienced landlords are re-balancing their portfolios. It also demonstrates the opportunity for brokers to work with specialist lenders who have expertise across the widest product set to support clients who are reassessing their portfolios.’

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