Landlords are increasingly turning to HMOs for better returns, research from lender Shawbrook has revealed.
In both 2022 and 2023, HMOs made up just over a quarter (27%) of all Shawbrook’s buy-to-let business.
However, as landlords place further emphasis on diversifying their portfolios, this number has already risen to more than a third (34%) in 2024.
There has also been a rise in HMO business from non-portfolio landlords, from 17% to 21% over the same period.
Daryl Norkett, director of real estate proposition at Shawbrook, said: “As landlords have dealt with years of challenges stemming from the pandemic and culminating in the past couple of years of economic uncertainty, HMOs have proven to be a sound strategy for landlords looking to diversify their portfolios, as well as strong option for non-portfolio landlords entering the market.
“HMO rental yields are more easily able to afford mortgage lending in a higher interest rate environment, and the regular turnover of tenants allows landlords to stay on track with market rents.The option to reconfigure properties and the ability to turn lower yielding single lets into higher yielding HMOs has clearly been a strong draw over the past year or so, as landlords adjust their businesses to succeed in a tougher economic environment.
“We have already improved our HMO criteria to enable landlords to secure larger maximum loan sizes. And, whilst we have already seen a modest increase in HMO activity, once the predicted interest rate cuts finally arrive, we’d expect to see significant growth in this sector.”
