HMOs produce highest buy to let yields in 2017

HMOs produce highest buy to let yields in 2017
The attractive returns on HMOs (house in multiple occupation) as a buy-to-let option are well known, as are, in some cases, the problems that come with multiple occupation. But if landlords needed further incentive to look at HMOs as a viable option for their portfolios, the latest data from the Complex Buy to Let Index should tantalise their taste buds even more.

HMOs last year produced the highest average yields of all buy to let properties at a very healthy 8.9%. And despite falling below 9% for the first time since 2011, HMO properties were comfortably ahead of multi-unit blocks on 8.1%.

The Index data certainly suggests landlords are squaring up for these properties as prices have been driven up by desire, edging past rental figures which could explain average yields dropping below 9%.

But healthy competition reflects diversity in landlord portfolios, despite local authorities granting fewer HMO licences than ever before and new legislation for multiple occupation on the horizon.

As many as 175,000 properties across the country could be involved in the new mandatory licensing scheme outlined by the government to improve standards across the lettings market, and HMOs in particular.

The proposal includes:

  - A minimum size requirement of 6.52m2 for rooms, with HMOs where tenants have their own bathrooms looking at closer to 10m2.
  - A fit and proper person test for landlords looking to secure an HMO licence, which could include criminal record checks.
  - Landlords providing adequate storage for holding and disposing of household waste.

Most landlords would agree that any proposal to weed out the rogues of the business is welcome, but the legislation is certain to cause a degree of uncertainty for some when pondering the prospect of an HMO investment.

Many landlords, meanwhile, are finding obtaining mortgage finance more difficult since the introduction of the Prudential Regulation Authority changes late last year.

The changes saw a tighter underwriting process for landlords with four or more mortgaged buy-to-let properties and research by BDRC Continental has revealed a whopping 70% of landlords with four or more properties now find securing finance a tougher proposition.

If you would like more landlord advice and buy to let tips, you can find your nearest Martin & Co branch here.