HMO demand among landlords on the rise – Paragon

The lender’s Q4 2019 PRS Trends report of 200 landlords found this was an increase from the 12 per cent who said they were planning to do so in the previous quarter. According to the lender, this is the highest level since Q2 2017.

Furthermore, the survey found a quarter of landlords said they planned to acquire flats, with 18 per cent targeting terraced housing.   

It also revealed that nine per cent of portfolio landlords – those with four or more properties – plan to add to their portfolio over the next quarter, compared to just one per cent of non-portfolio landlords.   

HMOs are typically purchased by portfolio landlords as they offer a higher yield but are more complex to manage, Paragon said, with its research showing HMOs typically achieve a yield of 6.5 per cent, compared to an average yield across all property types of 5.6 per cent.  

Richard Rowntree (pictured), director of mortgages at Paragon, said: “The private rented sector needs to grow to meet increasing levels of tenant demand and it’s clear that portfolio landlords will drive that growth. 

“Not only are they looking to build their portfolios, they are also looking at more complex types of property that will deliver higher yields, such as HMOs.”   

Weak confidence 

Overall, landlord confidence generally remained weak during the quarter, although there was a slight uptick compared to Q3 2019.  

Paragon’s Confidence Index – which is produced by landlords ranking confidence out of 10 – recorded a score of 6.2 during the period, the highest level for a year and up from 5.8 on the previous quarter.   

Rowntree added: “Although still fragile, hopefully we are starting to see some green shoots with regards to landlord confidence. Landlords have encountered significant regulatory and fiscal changes in recent years and we hope to now enter a more settled period.”