In the dynamic landscape of the UK rental market, landlords are making strategic moves to bolster their investment portfolios, with an increasing focus on Houses in Multiple Occupation (HMOs). Recent data from specialist lender Shawbrook sheds light on this notable trend, indicating a significant rise in the proportion of HMOs within the buy-to-let sector. This shift underscores a deliberate response by property investors to navigate through ongoing economic changes and uncertainties.
Growth in HMO Investment
According to Shawbrook’s data, there has been a discernible uptick in HMOs within the buy-to-let sector. In 2022 and 2023, HMOs accounted for 27% of Shawbrook’s buy-to-let business, a figure that has surged to 34% in 2024. This upward trajectory reflects a growing preference among landlords to diversify their investment portfolios by incorporating HMO properties. Even among non-portfolio landlords, investment in HMOs has seen an increase from 17% to 21% over the same period.
Diversification as a Strategic Response
The shift towards HMOs is not merely a coincidence but rather a strategic response by landlords to the economic uncertainties of recent years, exacerbated by the challenges brought on by the pandemic. Daryl Norkett, Director of Real Estate Proposition at Shawbrook, explains, “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.”
Enhanced Lending Criteria and Future Prospects
Recognizing the growing interest in HMOs, Shawbrook has adjusted its lending criteria to accommodate landlords seeking larger maximum loan sizes for such properties. This proactive measure is expected to further fuel growth in the HMO sector, particularly with anticipated cuts in interest rates. Norkett emphasizes, “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.” Shawbrook’s proactive approach underscores its commitment to supporting landlords as they navigate and adapt to the evolving market landscape.
In conclusion, the surge in HMO investment reflects a strategic shift in the UK rental market, driven by landlords seeking to diversify their portfolios and navigate through economic uncertainties. With lenders like Shawbrook adjusting their lending criteria to support this trend, the future prospects for HMOs appear promising, signalling a transformative phase in the rental property sector.