HMO yields house share HMO property investment tenants

These are the regions with the best HMO yields in the UK

HMO yields are often higher than traditional buy-to-let rental returns, but certain parts of the UK are becoming go-to destinations for this property type.

Both rental yields and overall landlord returns can be stronger when it comes to HMOs (houses in multiple occupation), and location can play a big part in the overall success of these larger properties. For many landlords, the additional work that can be involved in HMOs is outweighed by the better return on investment.

HMO yields, calculated by looking at the ratio of annual rental income to property price, tend to be higher than buy-to-let yields because they are occupied by at least three tenants, normally on separate tenancy agreements, which generates multiple income streams.

According to the latest research from buy-to-let lender Paragon Bank, average HMO yields vary fairly widely across the UK, from around 6% up to more than 9% in some areas. But where are the best locations for landlords to focus on?

Best and worst HMO yields

Paragon found that the highest-yielding location for HMOs in the UK is Wales, where the average HMO landlord brings in 9.01%. This is based on the average HMO property being worth £322,000, while the average annual rental amount for the property type is £29,100.

Next on Paragon’s list was Yorkshire and the Humber, with yields of 8.61% for owners based on an average property value of £308,000 and the average rent coming in for the year reaching £26,600 in the region.

Shortly behind, in third position, was the north west of England, where average HMO yields are 8.61%, with a £324,000 price tag for the average HMO property, bringing in rents of £27,000 per year.

Next, East Anglia generated HMO yields of 8.26%, followed by the East Midlands (8.12%), Scotland (7.91%), West Midlands (7.63%), north of England (7.58%), south west (7.48%), south east (7.18%) and London with the lowest at 6.13%.

While not uniform, there is a correlation between the highest priced properties bringing in the lowest rental yields, with London being a prime example. The average HMO there is currently worth £863,000, bringing in rents of £52,900 per year, leaving it at the bottom of the list.

Greater demand, greater quality

The quality and therefore the reputation of HMOs has improved over the years, as young professional tenants increasingly choose the property type as a more affordable, sociable option during their early working years.

As this trend has taken place, standards in the sector have been driven up, with tenants willing to pay more for added services and better facilities, as Louisa Sedgwick, commercial director for mortgages at Paragon Bank, points out.

“Demand for HMOs has grown in recent years as the quality of the accommodation has risen, with facilities such as en suites becoming commonplace. HMOs are moving up the quality scale as tenants demand more space, better services and access to private facilities.”

Worth the work?

There is the added benefit that HMOs not only generate better yields, but can also offer a better landlord return – taking mortgage payments into account – although Sedgwick points out that they can be “more labour intensive than a standard buy-to-let property”.

This is down to the fact that the properties tend to be much larger, and therefore may require more maintenance and upkeep, along with the fact that individual tenants or couples can come and go separately, meaning landlords may spend more time and expense dealing with tenant turnover.

There are also landlord licences to consider, along with other regulations, but for growing numbers of landlords, the strength of HMO yields can be enough to offset this.

Sedgwick adds: “The key to a successful HMO proposition lies in the experience of the landlord, the location and understanding the target tenant market.”

BuyAssociation helps investors find their next ideal property investment opportunity, with a range of traditional buy-to-let as well as HMO options available. Get in touch for more information

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