A look at the current HMO market

August 12, 2022

Like many other areas, the HMO market was hit by COVID pandemic restrictions which saw students moving back into family homes as universities closed.

However, as normal conditions returned, so did demand for shared living accommodation.

Demand exceeds supply

The impact of the pandemic on the HMO market was short-lived as universities and colleges opened up again. The market then reverted to its previous state of high demand but not enough supply. 

According to SpareRoom, the house and flat share website, they currently have more ads from people looking for rooms to rent than there are rooms available.

Tenant demand for HMOs is high across the sector, particularly in the student market.

There’s also increasing demand from young professionals, and the average age of renters is rising as a result of tenants renting for longer than before.

At the current rate of new HMOs becoming available, this situation of high demand and low supply is likely to continue for the foreseeable future.

The value of HMO properties

Research by property finance company Octane Capital found that the average HMO value is £364,508 – making it 32 per cent higher than a normal house. The research took in different areas of the country and found that in the north east, HMO market values were 109 per cent more than other properties.

In London, this figure was 72 per cent, 55 per cent in the West Midlands and 41 per cent in Scotland.

Are HMOs a sound property investment?

Property investors have sometimes shied away from HMOs due to additional licensing and planning restrictions in some areas. Plus, there are initial upfront costs to get an HMO up and running.

However, the benefits are significant. Rental values and yields are high as you generate multiple rent payments from the same property. Some HMO properties can offer twice the rental yield of a traditional buy-to-let. If you provide ensuite bathrooms for each tenant, then you can expect a very high rental yield. 

The other advantage is that there are fewer void periods as demand is so high. Also, cashflow is better because if one tenant leaves, you still have the rental payments of the others.

For more information on property investment strategies, view our video 10 Strategies for Making Money in UK Property.

Where’s the best place for HMOs?

Busy towns and cities with a high proportion of students and young professionals will have a high demand for rooms to let.

If you can find a suitable property close to a university or hospital, you can expect a stable tenant base. But not all houses are suitable for multiple occupancy.

The minimum requirement for a sleeping room for a person over 10 years of age is 6.51 square metres and a room for two persons over 10 years of age is 10.22 square metres. These sizes are minimal requirements and not intended to be optimal room sizes. Local authorities can implement their own policies and procedures to assess minimum room size conditions.

To find out more, view our video: Choosing the Best Property for an HMO

Would you like to learn more about property investment?

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