Buy-to-let market sees shift towards HMOs – Shawbrook

Landlords look to diversify portfolios amid higher interest rate environment

Buy-to-let market sees shift towards HMOs – Shawbrook

The proportion of houses in multiple occupation (HMOs) within the buy-to-let sector is experiencing a notable increase, specialist lending bank Shawbrook has revealed.

Data indicates that HMOs accounted for approximately 27% of all buy-to-let transactions facilitated by Shawbrook in both 2022 and 2023 – a figure that has surged to 34% in 2024, highlighting a shift in landlord strategies towards diversification of investment portfolios.

Furthermore, engagement from non-portfolio landlords in the HMO market has risen from 17% to 21% during the same timeframe.

“As landlords have dealt with years of challenges stemming from the pandemic and culminating in the past couple of years of economic uncertainty, HMOs have proven to be a sound strategy for landlords looking to diversify their portfolios, as well as strong option for non-portfolio landlords entering the market,” said Daryl Norkett (pictured), director of real estate proposition at Shawbrook.

“HMO rental yields are more easily able to afford mortgage lending in a higher interest rate environment, and the regular turnover of tenants allows landlords to stay on track with market rents.”

He also pointed out that the conversion of single lets into more profitable HMOs has become an attractive strategy for landlords navigating a challenging economic landscape.

“We have already improved our HMO criteria to enable landlords to secure larger maximum loan sizes,” Norkett said. “And while we have already seen a modest increase in HMO activity, once the predicted interest rate cuts finally arrive, we’d expect to see significant growth in this sector.”

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