Supporting your switch to high-yielding HMOs
Investing in property has always been a balance between running costs, borrowing costs and rental income but since 2021, when the Section 24 restriction on buy-to-let mortgage tax relief took full effect, landlords have had to work harder to ensure they turn a profit. In today’s property investment climate, a major threat is heightened lending rates, which can erode the returns of landlords who need to remortgage or take out new finance.
The yield remains the traditional yardstick by which buy-to-let viability is measured and for some investors, that figure is shrinking thanks to more expensive mortgage repayments. Therefore, passively running an investment portfolio has turned into a more asset management exercise, with chopping, changing, selling and buying required to stay profitable.
The latest Q4 2022 BVA BDRC Landlord Panel report sheds light on the type of property landlords should be investing in for the best outlook. While it found the average yield across the country for all buy-to-lets was 5.7%, HMO (houses in multiple occupation) properties were the best performers, with an average yield of 6.4%.
The report comes hot on the heels of analysis by Redmayne Smith, who found the top five areas for buy-to-let prospects were Glasgow, Manchester, Sheffield, Bristol and Edinburgh. Interestingly, analysis by Sirius Property Finance found the region with the fewest HMOs is the North East, where 17,378 HMO properties account for 1.4% of the region’s dwellings. In the East Midlands, HMOs account for just 1% of the region’s housing market at 21,752 shared properties. For comparison, there are 145,615 HMOs in London and 69,102 in the South East.
When you combine the above, it’s clear landlords may need to restructure their portfolios or rethink their investment plans to achieve the best yield. Viewber can be part of that exercise, especially if landlords are considering a HMO investment outside of their local area. Our ‘view a property on my behalf’ service is geared towards landlords who require accurate appraisals on the condition and location of a property – a honest, unbiased view before they invest their own time and money in a purchase.
In terms of investing in a HMO, a Viewber can visit any property in the UK that a landlord thinks may make a good shared property, and we are active in the top five areas mentioned earlier. Our video and opinion extended report with floorplan is ideal, as it will detail the condition of a property, capture the immediate area on film and provide accurate measurements together with the property’s layout – essential if the home needs reconfiguring to meet HMO requirements and return the best yield.
There are also links between HMOs, cities and the demand for student accommodation, with three crucial elements on the up. According to the Higher Education Policy Institute, the number of people studying within a higher education framework has increased by nearly 25% since 2006, while the younger population is projected to increase by 23% over the next decade. Additionally, Universities and Colleges Admissions Service (UCAS) has seen the number of international student applications from Nigeria, China and India rise this year, swelling the demand for student accommodation.
Students and house shares go hand-in-hand but so does a higher turnover of tenants and an increased amount of wear, tear and damage. Viewber’s inspection service is already used by a number of student landlords in order to keep tabs on their HMO’s condition, with our visits and checks resulting in detailed condition reports.
Two common misdemeanours in all HMOs that our Viewbers can look out for are overcrowding and subletting – both of which would breach a tenancy agreement and can be hard to spot if the landlord is living miles away. A Viewber can also act as a professional bridge between a tenant and the landlord, accompanying viewings, performing key handovers and being present during check in/check out procedures.
Finally, landlords looking at investing in a HMO will have to factor in the increased compliance and that’s something else Viewber can help with. As a recap, The Regulatory Reform (Fire Safety) Order 2005 requires landlords of small HMOs to ‘eliminate or reduce the risk of fire as far as is reasonably practical’, while the Smoke and Carbon Monoxide Alarm (Amendment) Regulations 2022 stipulate that all HMO landlords must ensure there’s at least one smoke alarm on each storey of the property, where there is a room used as living accommodation.
Additionally, a landlord must also make sure that there’s a carbon monoxide detector in any room which has a fixed combustion appliance. Larger, licensed HMOs may require even greater fire safety measures, such as fire doors and emergency lighting.
A Viewber can attend any HMO property in the UK to complete smoke detector and carbon monoxide alarm checks, identifying, photographing and audibly testing all units. For larger HMOs, a Viewber can carry out fire door and exit certification checks, looking for gaps, checking for damage to seals, inspecting hinges and noting any issues with opening/closing mechanisms. Written and photographic evidence will be documented and passed on to the landlord.
If the yield attached to a HMO property is proving hard to resist, talk to Viewber about how we can support your investment exercise and increase the geographical catchment in which you look. Contact the Viewber team for more details.
