HMO capital values outstrip rest of housing market by 32%, research reveals

The average HMO is now worth £364,508, 32% more than the typical house, according to new research which finds that trickier financing and licensing schemes have not deterred landlords from investing in the sector.

On the contrary demand for HMOs among landlords, and the restrictions imposed by additional licensing and planning restrictions in many cities, mean demand is outstripping supply.

Octane Capital reveals that in the North East, HMO market values are as much as 109% more than other properties, with London (72%), the West Midlands (55%), and Scotland (41%) also seeing some of the largest HMO price premiums.

Even in the East Midlands where this premium is at its lowest, HMOs still come in 2% above the value of the wider market. 

Investing in an HMO can be tricky, as they are often harder to finance and subject to extra planning rules, while ongoing costs and management requirements can be higher, according to CEO of Octane Capital, Jonathan Samuels (pictured).

However, he says it seems that professional buy-to-let investors are still hungry for HMOs, infused by the benefits of greater rental incomes and capital growth.

Complicated

“There’s no doubt that HMOs are a more complicated buy-to-let option but this doesn’t mean that they should be avoided as an avenue of investment,” says Samuels. 

“In addition to greater rental incomes and capital growth, you are far less susceptible to rental arrears and the impact they can have on cash flow, while void periods are also generally shorter, especially in areas such as major cities where demand from single tenants is consistently high.”

Read more: What about insurance for HMOs?

He adds that despite the initial higher cost of investment and new licensing laws presenting an additional hurdle, rental values and yields are also generally higher with HMOs.

“While they may take a little more time and effort to get up and running, you tend to reap the rewards once this hard work has been done.”

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