HMOs Providing the Highest Rental Yields for Landlords

Landlords looking to secure high rental yields should consider investing in Houses in Multiple Occupation (HMOs), which continue to outperform standard buy-to-let properties, the latest Complex Buy-to-Let Index from Mortgages for Business reveals.

HMOs produced an average yield of 8.9% in 2017, the report shows.

However, it is interesting to note that this is the first time that the average yield for this type of property has dropped below 9.0% since the index began in 2011.

Jeni Browne, the Sales Director at Mortgages for Business, comments: “The attractiveness of HMOs as a buy-to-let investment has increased in recent years, not only because of the higher yields on offer, but because serious investors are keener to diversify their portfolios.”

With more landlords vying for HMOs, prices have been pushed up more quickly than the rents, which, Browne suggests, is one of the main reasons that their yields have dipped.

Multi-units, such as blocks of flats, also performed well last year, generating an average yield of 8.1%, compared to 8.3% in the previous year. In comparison, standard buy-to-let properties produced lower, yet more consistent returns, at an average of 5.6%.

The average value of a standard buy-to-let property in 2017 was £305,283 – down by 19% on the £375,409 recorded in 2016. Mortgages for Business claims that this means that more landlords are seeking lower value properties, which, in part, explains why more investors are looking to acquire properties in the north of England.

Browne continues: “Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types. Although lower than previously, 8.9% is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets, but also other, non-property assets.”

The index also revealed that there has been a whopping 444% increase in the number of buy-to-let mortgage products on the market since the index was launched in 2011, but Browne believes that many lenders will soon start to reduce the range of mortgages on offer.

She says: “Looking forward, it is widely anticipated that buy-to-let lending will contract this year in response to the tax and regulatory measures being imposed on the sector. As such, I would expect product numbers to peak in Q1 2018, and we have already seen some lenders trimming their ranges, leaving a core of great products which have been designed to reflect the changing needs of landlords.”

You can read the latest rent price and yields figures from estate agent Your Move here.