Keeping up to date with the top-performing property types is essential to navigating ongoing changes in the property market. Here, we examine whether HMO properties are still worth it and discuss how to finance them to boost your rental profits.
Are HMO properties still a worthy investment type? As the private rental sector continues to change in line with landlord activity and new legislation, it’s important to consider whether your property investments are still performing to the best of their ability. Here, we discuss why HMOs are so popular and how you can find the best HMO mortgage rate for your needs.
Is it still worth investing in HMOs?
Absolutely. Demand for HMOs continues to rise (more on this below), and the rental yields on offer are increasingly competitive. HMO properties generated average rental yields of 8.87% in Q1 and 8.57% in Q2 of 2024, compared to just 6.23% and 6.71% for standard ‘vanilla’ buy to let properties. In fact, HMO properties have performed better this year so far than even semi-commercial properties in terms of yields, highlighting the benefits of owning these properties in your portfolio.
HMOs are also a fantastic way to start diversifying your portfolio. Mortgage lenders typically want to see at least one year’s landlord experience before offering on these property types. It’s common for new landlords to invest in HMO property as soon as they reach this threshold. Having a year more landlord experience also opens up the opportunity to invest in other complex properties, such as Multi-Unit Freehold Blocks and Semi-Commercial property.
What is the future of HMOs?
Tenant Demand
The supply and demand disparity for rental properties is slowly easing, with rental demand down 25% over the last year. However, competition remains high, with 15 households enquiring per rental home, more than double the pre-pandemic average of just six between 2017-2020.
Furthermore, it’s more affordable for tenants to rent a room in an HMO property than renting a full buy to let property, or even a studio flat, by themselves. Similarly, HMO properties appeal to a much wider range of tenants, such as students and young professionals. Therefore, it’s unlikely that we’ll see demand levels for these properties ease off any time soon.
Legislation
Different local authorities and councils will impose different legislation when it comes to HMO properties. In almost all cases, you will require an HMO license to let out your property as an HMO. It’s essential to stay up to date with the latest legislation and regulation news when it comes to letting HMOs, as failing to comply may result in a hefty fine.
For the latest updates, visit our HMO mortgages page.
Can you convert standard buy to let property into an HMO?
Depending on the property, yes! HMOs are defined as properties where three or more unrelated tenants share bathroom and kitchen facilities. You will need to ensure your bedrooms meet the minimum size requirement, which is, on average, 6.52 square meters for a single occupancy and 10.22 square meters for a double occupancy. It’s essential you take all these factors into account when deciding whether your buy to let would be suitable as an HMO.
Many landlords use bridging finance to complete the necessary refurbishment works to convert a buy to let into an HMO. Explore the types of bridging rates you can access here.
Are HMO mortgages hard to come by?
As an increasing number of landlords look to invest in HMOs, more lenders are entering this space. Consequently, HMO mortgage rate pricing is becoming more competitive.
Mortgage lenders still view HMOs as more complex, but they can still be reasonably simple to finance with the help of an experienced mortgage broker (like us!).
Are HMO mortgages expensive?
As previously mentioned, the increase in lenders offering HMO mortgages has made pricing more competitive. It is worth noting that HMO mortgage rates are typically 0.5-1% more expensive than that of standard buy to let rates, but this will vary depending on your individual circumstance and your lender.
To explore the types of rates you could access, use our FREE buy to let mortgage calculator.
Can I get an HMO mortgage for my first property investment purchase?
In most cases, no. As mortgage lenders view HMO properties as a complex property type, they like to see at least one year’s landlord experience. This gives lenders the reassurance that you’ve been through the buy to let mortgage application process before and that you understand the process of letting to tenants.
A small number of lenders may consider applications from first-time landlords on HMO properties. Get in touch with our team of experts to discuss your options.
How can I find the right HMO mortgage?
Working with a whole-of-market mortgage broker is the best way to find the right HMO mortgage for your individual needs. Our team of experts can compare all available rates to find you the most cost-effective deal that works for your property finance plans. We can also review your current property portfolio in the process to find new ways to save you money across your mortgage costs.
Talk to an expert
To see what types of HMO mortgage rates you could access, get in touch with our team here or call us on 0345 345 6788.
