The number of HMO licence applications has increased by 40% since 2018, representing a fundamental shift by landlords to HMO properties, according to recent research. The new responsibilities under the Renters’ Rights Act could prompt even more landlords to consider the additional benefits the HMO sector offers over standard lets – although the closer management they require must also be factored in.
The study was based on data obtained via Freedom of Information requests to UK local councils by Just Landlords. It found that the number of annual HMO applications has climbed from 41,162 to 57,725 during the period.
Higher rental income equals higher yields
The very nature of an HMO means you are charging multiple rental incomes, which means a higher income than if your property was let to a single household. This higher rental income relative to the property’s value results in higher rental yields than those of single-let properties. This is particularly true in the Peterborough area, where property prices are lower than in other parts of the country and rental demand – particularly for HMOs – is strong.
A wider spread of rental incomes
The wider spread of rental incomes means that landlords can be better financially protected if tenants fall into arrears or leave, compared to the risks of the single income stream of a standard let. However, if a tenant does leave, you should be careful in vetting their replacement to ensure you don’t set up a domino effect of further exits.
Strong demand
HMOs offer a cheaper, more flexible option for tenants than standard lets. This makes them particularly attractive for certain types of tenants, such as students, young professionals and key workers. Many of these want the freedom that HMOs offer to move on quickly and easily, with affordable rooms available on more flexible terms.
Maximising the value of your rental property
The higher yields on offer encourage investment. Since you want to maximise every inch of your HMO property, upgrading facilities becomes attractive for both the short- and long-term investment gains, despite the initial outlay. Adding features such as en-suites will be well received by tenants seeking additional privacy and so can also help attract better-quality tenants. It could also increase your property’s value in the long term.
Being all-inclusive makes managing bills less stressful
Most HMO tenancy agreements will include bills. This allows you to charge a premium all-inclusive rent and also simplify tenant management since utilities and other bills are paid centrally.
Beware of a closer focus on standards
Despite the growing shift to HMOs, the research showed compliance enforcement within the sector has also tightened. The number of council inspections of HMO properties has risen by 83% since 2018. Meanwhile, enforcement actions – including improvement notices and prosecutions – have increased by 180% during the period.
Licensing requirements are tightening – with the recent introduction of licensing for smaller HMO properties in Peterborough an example of how the sector is changing as councils seek to improve standards. The HMO market in Peterborough is well-established, meaning tenants know what to expect and demand quality and consistency. Ensuring your HMO property is run correctly and with the greater attention to detail and closer management it requires, is vital to maximising the advantages that the HMO sector offers.
We Can Help
At Progressive Lets, we are experts in the rental market in the Peterborough area and help landlords find and manage properties within a 50-mile radius. We are also an HMO specialist. Get in touch to find out more.
