Shawbrook’s sales and marketing director Karen Bennett and director of lending Stuart Kelly both said the demand and quality of HMO developments have increased since the bank started lending to landlords in 2012.
HMO yields are high, with Platinum Property Partners finding recently that returns exceeded standard buy-to-let investments by 40% between 2010 and 2014. Every £1,000 invested in HMOs in 2010 would have grown to £2,080 by 2014 compared to £1,770 in the wider buy-to-let market.
Bennett said: “HMOs are on the rise because they’re attractive to multiple tenant types.
“You’ve got the replacement of social housing and more professionals work in outer cities like London and Manchester.
“The world is changing. Fewer people who finish at university want to go back to mum and dad – they have experienced independence.
“Equally HMOs are also fantastic for people working in hospitals as they may work very unsociable hours and they can’t necessarily afford to have their own flat.”
In London a higher proportion of household income is typically spent on rent or mortgages, contributing to especially high demand in the capital.
Kelly said: “HMOs are definitely something we’re seeing a lot more of and it’s an area where we’ll get more business simply because of the lack of housing in the UK.
“It’s well documented, particularly in terms of new builds.
“More people want to get on the housing ladder and the lack of supply pushes people down different routes. Investors are quite wise to that.”
The quality of HMO properties have improved considerably as professionals demand higher standards, the pair added.
Kelly said: “Traditionally it was seen as the lower end of the market but actually it’s not like that now.
“People are asking for a much nicer finish with better facilities. HMOs are typically higher spec with larger kitchens as they are for the professional market.”
Students also have a better deal, as Bennett said: “The quality of the student accommodation has changed dramatically over the past five years.
“When I think of when my friends were at university and the quality of digs they used to live in what we see now is worlds apart.”
Last month Shawbrook’s commercial division developed a HMO valuation methodology for its broker partners.
This asserted that valuers should assess the size of the property, the level of works planned, whether there is an Article 4 in place (restrictions on how many HMOs are allowed in the area) and the cost of changing the fabric of the building by putting in fire doors for example.
Bennett added: “We are trying to provide more clarity to brokers.
“We hope it helps some of the other lenders understand how we do it so we can establish a market standard in terms of how properties are valued.
“This is a market where brokers are struggling. Whilst lenders can choose not to support brokers in the detail, that will not help the market grow.
“You’ve got to share ideas with each other to improve standards.”
