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Commercial Finance

Ask the Experts: How are HMOs performing in light of the buy-to-let changes?

Buy-to-let investors are snapping up HMOs (houses in multiple occupation) as they look for higher-performing and less expensive properties, according to a recent industry report.

HMOs and multi-let properties performed particularly well in the second quarter of this year, with analysis across the buy-to-let market revealing much lower values for these kinds of properties when compared with the property market overall, according to the report by a leading mortgage broker.

In fact, a survey carried out at the end of last year with buy-to-let landlords suggested that over half would consider investing in HMOs if it helped to protect their portfolio, and the current performance in the HMO sector would suggest that some have taken this approach as an alternative to the traditional single-let property.

HMOs are homes for three or more people, who are not related, and which usually have a shared kitchen or bathroom, with separate, rented bedrooms. According to the recent industry research, they can currently achieve rental yields of more than 10 per cent, making them a popular investment choice, despite the various changes that have been introduced to curb the buy-to-let sector.

Investors looking into renting out HMOs will have to think carefully about the surrounding area; other nearby types of property, transport links and local amenities. Landlords will also have to speak to their local council about and planning permission or licensing regulations that may be required. A HMO must have a licence if it is three or more storeys high, or is occupied by five people or more.

Some councils, such as Cardiff and Bath, have put restrictions in place to limit the number of HMOs, so it’s important to check with the local council, as rules can vary considerably in different regions.

However, providing landlords do their homework, HMOs could offer a great opportunity. Many university cities in the UK have proved popular for investors looking at these kinds of rental houses, because of their large student populations, and we often see HMOs picked up at auction by landlords in these areas.

Last month, we introduced a specialist buy-to-let product, designed for investors and landlords looking to secure finance on HMOs and semi-commercial property, and continue to evolve and adapt our products for the buy-to-let market, applying our usual common sense philosophy.

Find out more about funding for HMOs.

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