HMOs are sharpening the discipline of buy-to-let – Sedgwick

Landlords are making decisions within a framework shaped by tenant expectations, energy efficiency requirements, operating costs, taxation and regulation, while ensuring properties continue to deliver sustainable returns. 

For anyone looking to understand how those developments are influencing landlord behaviour, houses in multiple occupation (HMOs) provide a useful reference point. Shared housing typically requires a greater degree of active involvement than many other forms of BTL, whether through refurbishment, property configuration, amenity provision or ongoing investment.  

For brokers, that provides valuable insight into the priorities and objectives shaping client decisions across the wider private rented sector. 

The appeal of HMO investment 

Demand remains strong across many HMO markets, serving everyone from students and young professionals to key workers seeking affordable accommodation in high-cost locations. That level and breadth of demand continues to underpin the appeal of HMOs as an investment proposition.  

We carried out research amongst our own landlord customers, and an encouraging finding was that 43% of shared housing providers planned to acquire additional HMO properties, demonstrating the confidence many continue to have in the sector. 

The appeal of HMOs extends beyond demand alone. Our latest BTL yield data showed that HMOs generated average gross rental yields of 8.9%, making them the highest-yielding property type within our loan book. 

Shared housing can also provide a degree of income resilience because rental income is spread across multiple occupants within a single property, reducing exposure to a complete void period when individual tenants move on. 

Making the most of those advantages often means continuing to invest in the property itself. Improvements that enhance the appeal of a home can help landlords attract and retain tenants, while also supporting the long-term quality and value of the asset.  

Our research found that more than half of landlords reported demand for faster broadband and en-suite facilities, while almost four in 10 highlighted larger rooms and higher-quality furnishings. Nearly half said they were seeing demand for higher-end HMOs and a similar proportion pointed to increased interest from young professionals.  

Driving up rental standards 

Alongside the benefits for individual properties, this kind of investment has contributed to the rising standards increasingly seen across the professionally managed private rented sector (PRS). 

Energy efficiency provides another example of how landlords are continuing to enhance their properties. Around two-thirds of HMO properties already achieved energy performance certificate (EPC) ratings between A and C amongst our sample, while a significant proportion of landlords had brought forward improvement works ahead of potential regulatory changes.  

Like the other enhancements landlords are making, many landlords recognise that improving energy performance can make properties more attractive to tenants while reducing running costs and supporting the long-term condition of their assets. 

For brokers, these developments are gradually changing the nature of client discussions. Financing decisions are becoming more closely linked with refurbishment plans, future compliance requirements and broader investment objectives. Securing a competitive rate remains important, but advisers are increasingly helping clients assess how different funding options can support the next stage of their property ambitions, something that offers opportunities above the initial deal. 

In turn, supporting that activity requires lending propositions that recognise the realities of modern rental businesses. HMOs can involve different tenancy structures, more intensive management arrangements and a greater emphasis on property performance than some other BTL assets.  

While technology can improve efficiency and remove administrative friction, specialist expertise remains valuable.