HMO market values hold up despite regulatory headwinds
Octane Capital’s market analysis found that the current market value of multiple occupancy (HMO) homes currently sits above broader market values, suggesting that new licensing laws have had a limited impact on the appetite for the way often perceived as more difficult to build a portfolio of rental purchases.
Licensing changes for HMOs have been rolled out across Britain since 2018, with some regions only adopting the rules up to two years later. These changes mean that a license must be obtained for any property occupied by three or more people from different households, but who share facilities such as a bathroom or kitchen. The permit changes were designed to provide a safer and higher standard of living for tenants.
Investing in an HMO can be tricky because they’re often harder to finance, come with additional planning restrictions, and not all properties fit the bill in the first place. The market is also limited while installation and running costs may be higher and overall management requirements may also be greater. However, even adding licensing requirements to the mix, it seems that professional buy-to-let investors are still eager for HMOs, no doubt imbued with the benefits of higher rental income and capital growth.
In fact, Octane’s analysis shows the average HMO in Britain is valued at £364,508, around 32% above the wider market value of properties.
In the North East, market values for HMOs are up to 109% higher than properties in the wider market, with London (72%), the West Midlands (55%) and Scotland (41%) also recording some of the largest HMO price premiums. .
Even in the East Midlands where this premium is at its lowest, HMO properties are still 2% above the value of properties in the wider market in the region.
Octane Capital CEO Jonathan Samuels commented: “There’s no doubt that HMOs are a more complicated buy-to-let option, but that doesn’t mean they should be avoided as an investment vehicle.
Yes, financing can be tricky, but we regularly deal with the weird and wonderful of buy-to-let financing, so HMO financing is actually a very simple undertaking when using the expertise of an industry specialist. .
In addition to higher rental income and capital growth, there are also a number of other benefits that may outweigh the challenges perceived by HMOs.
You are much less sensitive to rent arrears and the impact they can have on cash flow, while empty periods are also generally shorter, especially in areas such as major cities where demand for unique tenants is consistently high.
Although the initial cost of investing is higher and new licensing laws present an additional hurdle, rental values and yields are also generally higher with HMOs and, although they may take a little longer time and effort to get up and running, you tend to reap the rewards once that hard work is done.
Many HMOs will also offer the benefit of an existing license. In some cases, that license may have expired, although that still puts you in front because getting a new license should be much easier.
HMO specific market values from Property data and relative to the broader market values of UK Government: HPI
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