Survey Reveals HMOs as Critical Income Source for Landlords Amid Market Resilience and Demand

Approximately half of HMO landlords surveyed by buy-to-let lender Landbay indicated that their property or portfolio is their sole source of income. This reflects a significant reliance on rental income, highlighting the importance of HMOs (houses in multiple occupation) in the investment strategies of many landlords.

The survey, which included a diverse range of landlords, revealed that just under 30% of participants owned an HMO property or portfolio. Of these HMO landlords, a significant 72% managed their properties through a limited company. Notably, half of these landlords reported that they did not hold another job, relying solely on their HMO investments for their income. This trend underscores the critical role HMOs play in providing financial stability for many investors.

Key Benefits

Despite the inherent complexities of managing HMOs, the survey found that nearly half of these properties were self-managed by landlords. Among these self-managers, a third owned extensive portfolios with over 20 properties. This trend towards self-management might be attributed to the fact that the most prevalent portfolio size was relatively small, with 34% of landlords owning between 4-10 properties. Self-management could offer greater control over property maintenance and tenant relations, potentially increasing profitability despite the added workload.

Geographically, the survey found that the highest concentration of HMOs was in London and the South East (47%), followed by the East Midlands. This distribution aligns with the high demand for rental properties in these regions, driven by factors such as employment opportunities, educational institutions, and urbanization trends. The popularity of HMOs in these areas suggests a strong market potential for investors looking to capitalize on regional demand.

Eligibility Criteria

Rob Stanton, sales and distribution director at Landbay, provided insights into the findings: “Our survey results highlight sustained confidence in the HMO sector. Despite the challenges posed by proposed rental reforms and local authority licensing schemes, the market remains robust. The ongoing housing shortage has intensified demand for well-maintained house shares. HMO landlords are in a unique position to meet this demand, offering affordable and flexible housing solutions.

“HMO landlords have seen financial benefits from falling utility bills, which has led to higher net rental income and improved borrowing potential against the property's value. Furthermore, the reversal of council tax banding for individual rooms in shared houses means that HMOs are once again classified as single dwellings, simplifying the tax situation for landlords. This regulatory change can significantly impact profitability, making HMOs an even more attractive investment.

Application Process

“With thorough research and careful planning, investors can achieve substantial returns from HMO investments. It’s crucial for prospective landlords to understand the local market dynamics, regulatory environment, and tenant needs. By doing so, they can navigate the complexities of HMO management and maximize their investment potential. The resilience of the HMO market, coupled with strategic property management, positions landlords to benefit from both steady rental income and long-term capital appreciation.”

The survey results suggest that, for many landlords, HMOs are more than just a source of income; they are a cornerstone of financial strategy and stability. As the housing market evolves, the role of HMOs is likely to become even more pronounced, offering opportunities for both new and seasoned investors to diversify their portfolios and secure reliable income streams. The continued confidence in HMOs, despite regulatory challenges, underscores their importance in addressing housing shortages and providing flexible living arrangements for tenants.

Conclusion