Where are the best yields for landlords considering Houses in Multiple Occupation as part of their property portfolio? Hiten Ganatra takes a look and offers an insight into some up and coming changes to this market
A recent report published by property management and financial platform Lendlord provided detailed insights into the Houses in Multiple Occupation (HMO) market for Q4 2024.
The data showed that the North East offers easily the highest average yield at 15.4% with Wales at 11.4%, East Anglia at 11.2% and Yorkshire and Humberside at 10.8%.
However, the South East at 10.6% also demonstrates yields over 10% are possible in areas with higher-than-average property prices.
The report also showed Greater London dominated the HMO market, accounting for 20.6% of all HMOs analysed, while regions like the West Midlands (11.8% market share) and the North West (15.1% market share) played key roles in the HMO landscape.
However, not far ahead and looming on the horizon is the Renters Rights Reform Bill which proposes several significant changes that will impact rental properties including Houses in Multiple Occupation (HMOs).
Here’s a rundown…
1. Abolition of fixed-term tenancies
The Bill seeks to eliminate fixed-term assured shorthold tenancies, transitioning all tenancies to periodic agreements. This change aims to grant tenants greater flexibility and security, allowing them to end their tenancy with a two-month notice period.
2. Enhanced grounds for possession
While the Bill abolishes Section 21 ‘no-fault’ evictions, it introduces clarified and expanded grounds for possession under Section 8. Landlords can regain possession for specific reasons, such as intending to sell the property or accommodating close family members.
However, tenants are protected during the initial 12 months of tenancy from evictions based on these grounds.
3. Rent increase regulations
The Bill proposes that rent increases be limited to once per year, with landlords required to provide a two-month notice period before implementing any increase. This measure aims to offer tenants more predictability and protection against sudden rent hikes.
4. Decent homes standard
The introduction of the Decent Homes Standard to the private rented sector mandates that all rental properties, including HMOs, meet specific criteria to ensure they are safe, in good repair, and free from serious hazards.
5. Prohibition of discriminatory practices
The Bill makes it illegal for landlords and agents to discriminate against tenants based on their receipt of benefits or if they have children. This ensures a fairer rental market and equal access to housing for all prospective tenants.
These proposed changes aim to enhance tenant security and standardise practices within the private rented sector, which will directly affect the management and operation of HMOs.
Despite this increased regulation around landlords and the letting of properties, plus higher interest rates making either margins tight for some property investors or leaving some unable to meet lender affordability requirements – there are undoubtedly still many opportunities available for savvy investors and HMOs definitely fall into that camp.
Whether you seek to buy an existing HMO or convert properties that you hold into HMOs – maybe by using short-term/bridging finance to find such conversions (allowing for the granting of a HMO licence from the local authority of
course) – this latest set of data makes it clear that HMOs still offer investors excellent yields.
Hiten Ganatra
With over 20 years’ experience in helping landlords maximise their investment opportunities using various finance options, we are seeing many clients diversify and for many this includes having HMOs in their portfolios.
From these latest figures, it’s clear why this is a trend that I do not see changing any time soon.
Hiten Ganatra is managing director of Visionary Finance