The different ways landlords invest in HMOs – Fryers

The performance of the buy-to-let (BTL) market continues to differ across the UK.

In the North and the Midlands, rentals are thriving because property is more affordable and demand from tenants is strong.

In some parts of the South, where property prices are higher, local regulation is increasing, although demand for shared housing remains robust.

 

Northern yields lead the way

Landlords in the North of England continue to see higher yields for their properties.

Paragon Bank data shows average yields in the North East reaching 8.16% during Q3 of 2025, compared to 6.49% in the South East.

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The North West (7.81% yields) and Yorkshire and the Humber (7.8% yields) are also performing well, supported by lower property prices and consistent rental demand.

 

The South faces different pressures

By contrast, the South East and parts of London have seen slower growth.

Here, higher property prices, stricter local licensing and planning have limited HMOs, with the proportion in the region dropping by 3.3%.

However, room rents continue to show resilience.

SpareRoom’s Q3 2025 index reports an average London room rent of £995 per month; a marginal 0.1% decline year-on-year.

By contrast, Wales (+2.3% to £586) and English regional markets such as the South West (+1.5% to £674) and North West (+1% to £611) continue to see modest rental growth.

Outside London, landlords are more likely to diversify their portfolios, combining single lets and houses in multiple occupation (HMOs).

In doing so, landlords are able to strive for better yields as well as benefit from capital appreciation.

 

University towns and city clusters

University towns remain a defining feature of ‘the HMO map’.

Student populations are at record levels, with 2.9 million people enrolled in higher education in 2023/24.

Leeds, Manchester, Nottingham, Sheffield and Durham continue to see strong student-led HMO demand.

These locations are joined by Cardiff, as well as Bristol and Exeter in England’s South West.

Typically, occupancy rates in these areas are high and void periods are shorter than average.

Postgraduates and young professionals are a typical tenant type in this market.

 

Company ownership

There were a record 61,517 landlords creating limited companies in 2024 (a 23% rise year-on-year).

HMO investors are a key part of this trend, reflecting the continued professionalisation of the sector.

 

The HMO advantage

For landlords balancing rising costs and tighter margins, HMOs can make capital work harder.

The appeal lies in higher income potential, reduced rental voids and improved borrowing power.

All of these factors are key advantages in light of increases in landlords’ income tax and anticipated additional administrative obligations when the Renters’ Rights Act starts operating.

For example, a standard single-let property valued at £700,000 typically generates around £1,950 in monthly rent and supports borrowing up to 59% loan to value (LTV) if inside a limited company.

The same property configured as an HMO can bring in £2,600 per month and enable borrowing of up to 75% LTV.

 

Outlook

Higher rental income and improved affordability calculations translate into greater flexibility and resilience.

As part of this, HMOs illustrate the changing shape and opportunities for landlords inside the private rented sector.