HMOs moving upmarket as more professionals embrace ‘shared living’

HMO landlords report that more professional tenants seeking better facilities are helping move the sector ‘up the value chain’, a new report suggests.

Lender Paragon says these prospective tenants now expect en suite bathrooms, larger rooms, high-speed broadband and quality furnishings.

HMO landlords identify a flight to quality as a trend characterising the past year, with 48% saying they’d seen growing demand for better quality HMOs and 45% saying demand from young professionals was up over the past year.
Just under a quarter, 23%, of landlords also said HMOs were appealing to older, affluent tenants.

The data reflects the difficulties of getting on the property ladder for even relatively well-off tenants, and may help change the sector’s reputation for low-quality, basic accommodation that appeals solely to the economically disadvantaged.

Of the landlords canvassed by Paragon, just over a third said tenants were asking for office facilities to enable home working.

Strong demand

“We saw strong growth in demand from landlords to acquire HMOs during the pandemic,” says its MD of Mortgages Richard Rowntree.

“This may reflect the wider shortage in rental property with tenants opting for a room in a shared home because one or two-bedroom properties are in short supply.

“Tenants also like the flexibility and social nature of HMOs, particularly if they are renting with friends.”

The research also revealed why the HMO sector is booming. Nearly half of HMO landlords said they offer better rental yields than other residential rental properties.

And some 40% said HMOs offered better financial protection from voids, while 53% said there was no material difference in capital gain between single units and HMOs, making income the deciding factor.

Who are the new HMO tenants?

Nearly half, 46%, of tenants fell into the young single bracket, with 47% students and 41% white collar, clerical or professional workers. A quarter of tenants were manual workers, with 15% represented by older singles. Smaller groups included Universal Credit Claimants (9%), families with children (4%) and migrant workers (4%).

Read more: What’s the difference between an HMO and a bedsit?