Demand for HMOs on the rise

Demand for HMOs on the rise as portfolio landlords look to purchase

• 31% of landlords looking to purchase will target HMOs in 2020
• 9% of portfolio landlords – those with four or more properties – plan to add to their portfolio over the next quarter
• Landlord confidence ticks up, although remains historically weak

Landlords are planning to acquire Houses in Multiple Occupation (HMO) more than any other property type over the next 12 months, research from Paragon has found.

Paragon’s Q4 2019 PRS Trends report¹ found that of the landlords planning to purchase property in the next 12 months, nearly a third (31%) plan to purchase HMOs, up from 12% just three months earlier. 

This is the highest level since Q2 2017 and reflects a greater propensity for portfolio landlords to purchase. A quarter of landlords said they plan to acquire flats, with 18% targeting terraced housing. 

The research revealed that 9% of portfolio landlords – those with four or more properties – plan to add to their portfolio over the next quarter, compared to just 1% of non-portfolio landlords. 

HMOs are typically purchased by portfolio landlords as they offer a higher yield but are more complex to manage. Paragon research shows HMOs achieve a yield of 6.5%, compared to an average yield across all property types of 5.6%².

Richard Rowntree, Director of Mortgages at Paragon, said: “The private rented sector needs to grow to meet increasing levels of tenant demand and it’s clear that portfolio landlords will drive that growth. Not only are they looking to build their portfolios, they are also looking at more complex types of property that will deliver higher yields, such as HMOs.”

Overall, landlord confidence generally remained weak during the quarter, although there was a slight uptick in landlords’ confidence compared to Q3 2019. Paragon’s Confidence Index – which is produced by landlords ranking confidence out of 10 – recorded a score of 6.2 during the period, the highest level for a year and up from 5.8 on the previous quarter.

Richard Rowntree added: “Although still fragile, hopefully we are starting to see some green shoots with regards to landlord confidence. Landlords have encountered significant regulatory and fiscal changes in recent years and we hope to now enter a more settled period.”

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