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Clarity For HMO Landlords… or Are Room Sizes Still a Grey Area?

Peter Hemple joins the multi-let merry-go-round

There is a reason that HMOs (House in Multiple Occupation) have grown in popularity with property investors in recent years - they nearly always produce better returns. Last year was no different, according to Mortgages for Business, which reported in its Complex Buy to Let Index that a typical HMO produced average yields of 8.9% in 2017 - the highest of all buy to let property types.

However, this is actually the first time that rental yields for this type of property have dipped below 9% since the index was launched in 2011.

Commenting on the findings, Jeni Browne, sales director at Mortgages for Business says: “The attractiveness of HMOs as a buy to let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios. With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop, although, I suspect that the granting of fewer new HMO licences is also having an impact.”

Regarding a typical (vanilla) BTL property, the firm says that the average value in 2017 was £305,283, a 19% decrease on the average in 2016 (£375,409). “These results suggest that landlords are seeking lower value properties and, anecdotally, we hear that they have been looking further north for their acquisitions where prices are cheaper. The benefits of this strategy include less stamp duty, future capital growth, and scope for rental increases which thus allow for slightly higher yields”, Browne added.  

New licensing rules are coming this year  
The Department for Communities and Local Government (DCLG) announced last year that it wants all landlords in England that let a property to five or more people from at least two different families, to be licensed. Under the plan, the maximum number of people who can occupy a room would be specified in the property's licence - ending, in theory at least, some overcrowding in the rental sector.

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