Is it worth buying an HMO?

pros and cons of hmo property

Are you a landlord looking to add a House of Multiple Occupation (HMO) to your property portfolio? As with all property investments, there are pros and cons, but it’s easy to see the appeal.

HMOs are in high demand and offer higher rental yields than standard buy-to-let. However, they are more complex to manage, incur higher costs and subject to strict regulations. Also, HMO mortgages are more expensive and harder to obtain, which is why it’s important to seek professional mortgage advice.

Read on for Goldmanread’s helpful guide on whether HMO investment properties are worth it in today’s market.

For advice on securing a landlord mortgage for a buy-to-let or HMO property, then contact the experts at Goldmanread. We can research the market on your behalf for the most favourable terms, helping you to get the best return on your investment property.

What is a House of Multiple Occupation (HMO)?

HMOs are single homes with multiple tenants (often three or more tenants) from different families who rent individual rooms but share facilities like kitchens, living spaces and bathrooms.

Popular with students and young professionals in urban areas, HMOs offer landlords typically high rental yields and a large potential market. However, running costs are also typically higher and managing multiple tenants is more complex than standard buy-to-let.

Are HMOs good property investments?

Generally, HMOs are good investments as they tend to generate higher rental yields than standard buy-to-let properties. Also, properties that rely less on renting to one tenant offer more sustainable, long-term rental income.

There is a steady demand for HMOs among groups like students, professionals, and workers, such as nurses, which helps maintain the profitability of an HMO investment property.

Despite the increased rental income, it’s important to remember that HMO houses require more intense management and have higher running costs. Usually, household bills, such as council tax, utility bills, etc., are included in the rent.

So it’s important that landlords employ strong cost control measures to ensure that the property continues to make a profit.

Is there a demand for HMO properties?

In recent years, the UK’s increasing population, lack of new affordable housing, and rising property prices have driven up the demand for rental properties. HMOs offer flexible rental solutions to those who cannot afford to rent their own property.

As local councils have seen their housing stock deplete, they have become increasingly dependent on HMO providers to make up the gap in the housing market.

HMOs are increasingly sought after in city centre locations due to the convenience they offer for commuting to work. London, in particular, has witnessed a growth in HMO properties, which is consistent with trends observed in most major cities throughout the UK.

All of this means that it is relatively easy to attract tenants, making HMO investments increasingly viable.

How profitable is HMO investing?

The profitability of an HMO property largely depends on:

  • Location
  • Potential rental income
  • Associated costs e.g. mortgage, utility bills, household maintenance

When starting your HMO investment journey, it’s important to consider all of these factors to work out if your investment strategy is profitable and sustainable.

Also, don’t forget to factor in higher borrowing costs. HMO mortgages generally have higher fees and interest rates, and the rental yield calculations used by lenders also tend to be higher.

Pros of investing in HMOs

Let’s take a look at some of the reasons that property investors are keen on investing in HMOs.

  • HMOs offer a high rental yield compared to standard buy-to-let.
  • With multiple tenants, even if one tenant leaves, you still have income from the others, minimising vacancy losses.
  • Converting a property into a multiple-occupancy dwelling can drive up its resale value, as it is attractive to other HMO investors. However, it’s important to remember that you may require planning permission to convert a property into an HMO.
  • Houses are in high demand by large organisations such as councils and government agencies that require rental property. Over the past 30 years, one of the major developments in the housing market has been the transfer of public housing to the private sector.

This has happened due to policies like Right to Buy and local authorities selling off their housing stock to fund spending shortfalls. By selling off and re-renting public housing, a local council can avoid ongoing maintenance costs. For HMO landlords, government-linked rental contracts can provide secure ongoing rental income.

Cons of HMO properties

  • HMOs require more intense management. It’s sometimes compared to running a hotel or guest house, with responsibility for cleaning communal spaces and maintaining the property.
  • HMOs incur higher wear and tear costs. It’s important that landlords stay on top of property maintenance; otherwise, HMO houses can rapidly deteriorate, to the detriment of the neighbourhood.
  • Most HMOs require Local Authority licences and are strictly regulated. Any infringement leads to court action, fines, and imprisonment in some cases, particularly for fire safety violations. It’s essential to comply with regulations to protect tenants and avoid legal consequences.
  • Mortgage costs and rates are generally higher for HMOs, as lenders see HMO lending as a higher risk. It’s also a smaller market with fewer lenders, which drives up rates.

What other things should you consider when purchasing an HMO property?

There are a number of factors to consider when purchasing an HMO.

Location

Is there a demand for HMO properties in your target area?

Is the HMO already saturated?

Is there an aversion to HMO homes in your chosen neighbourhood?

Costs

How much are the running costs? You need to factor in utility bills, council tax and other regulatory and administrative costs.

Management

Work out if you have the time to devote to managing an HMO properly or consider using a letting agent.

Looking for an HMO mortgage? Get in touch with Goldmanread today

At Goldmanread mortgage brokers, we have been arranging HMO mortgages since 2009 and have helped many HMO landlords secure the right funding to maximise their investment. We have access to over 100 HMO lenders, each offering hundreds of products.

HMO mortgages are considered a niche market, so it’s important to take professional advice to ensure you are offered the most appropriate deal for your circumstances.

Get in touch with Goldmanread today, and let’s discuss your HMO requirements

Picture of Clive Read
Clive Read

Clive Read is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.

Contact Goldmanread
Contact Us
Please complete our website contact form for a call or message back. We will soon get back to you to offer our friendly advice.
More Posts
Couple reviewing their mortgage term

Are You Able to Extend a Mortgage Term?

As a mortgage professional, I often get asked by clients, “Can I extend my mortgage term?” The simple answer is yes, but as with all mortgage decisions, there are considerations. If you are moving house or looking to remortgage, you can extend your mortgage term with your existing mortgage lender or with a new lender,

What makes a house uninhabitable to mortgage in the UK?

What makes a house uninhabitable to mortgage in the UK?

The UK has many ageing properties in varying degrees of decline. What some may see as a lost cause, others, particularly property investors, may see as a renovation project. However, it is not usually possible to get a mortgage on a property considered ‘uninhabitable’ by a mortgage lender. Mortgage lenders consider a property uninhabitable if

Couple looking to add stamp duty to their mortgage

Can you include stamp duty in my mortgage?

The prospect of paying stamp duty costs can be daunting, especially for a first-time buyer. As a mortgage broker, I’m often asked if it’s possible to include stamp duty to a mortgage, rather than paying it upfront. Stamp duty must be paid to HMRC upon completion, so you can’t delay payment by ‘adding’ it to

Couple applying for a joint mortgage with one income

Guide to getting a joint mortgage with only one income

For many couples, owning a home together provides legal, financial and emotional security. But for those relying on a single income, the dream of joint ownership can feel out of reach. However, securing a joint mortgage with only one income is indeed possible with the right approach and understanding of the process. Securing joint mortgages

Scroll to Top