In today’s fast-evolving property market, investors are constantly reviewing their strategies to maximise returns and minimise risks. While traditional buy-to-let (BTL) properties have long been a popular route for landlords, Houses in Multiple Occupation (HMOs) are increasingly gaining favour particularly in London and other UK urban centres. At Mortgage Offer Ltd, we’ve noticed a significant shift in investor interest towards HMOs, and there are compelling reasons behind this trend.
What is an HMO?
A House in Multiple Occupation (HMO) is a property rented out by at least three people who are not from the same household but share facilities like the bathroom and kitchen. This setup typically appeals to students, young professionals, and low-income tenants seeking affordable accommodation.
BTL vs HMO: Understanding the Key Differences
Buy-to-let properties generally involve a single tenancy, meaning one household rents the entire property. In contrast, an HMO will have multiple tenants, each with their own tenancy agreement. This structure has notable implications for rental income, management, and regulatory responsibilities.
So, why are HMOs currently considered a better investment option than standard BTL properties?
1. Higher Rental Yields
One of the most compelling advantages of HMOs is the potential for significantly higher rental yields. By renting rooms individually, landlords can typically achieve greater overall monthly income compared to letting the entire property under one tenancy. For example, a four-bedroom HMO in London could bring in up to 40% more in rent per month than if it were let to a single family.
Given the increasing cost of living, more tenants are seeking house shares, which further drives demand for HMOs and helps keep those yields high.
2. Reduced Risk of Rental Void Periods
With a BTL property, if the single tenant moves out, the property becomes entirely void meaning no income is generated during that period. In contrast, HMOs are less vulnerable to complete rental voids. If one tenant moves out, the other rooms can still provide income while you source a replacement.
This multi-occupancy model spreads the risk and gives landlords a more stable cash flow, making HMOs especially attractive in uncertain economic times.
3. Increasing Demand from Renters
Affordability is a growing concern in London and across the UK. As property prices and rents rise, more individuals particularly young professionals are turning to shared housing options. HMOs offer an affordable alternative without sacrificing desirable locations or amenities.
This growing tenant pool ensures that well-managed HMOs are rarely vacant for long, particularly in university towns or areas with large employers and strong public transport links.
4. Opportunities for Value-Add Investments
Many landlords are attracted to HMOs because they allow for creative investment strategies. For instance, converting a standard 3-bedroom home into a 5-bedroom HMO with en-suite rooms can significantly increase the property’s value and rental income.
Moreover, HMOs often qualify for commercial lending based on income potential, rather than just bricks and mortar value, opening up further borrowing capacity for experienced investors.
5. Stronger Resilience to Market Changes
In times of economic uncertainty, such as during interest rate hikes or cost-of-living crises, HMOs tend to remain resilient. This is largely due to their affordability and the flexibility they offer tenants.
While some landlords with traditional BTLs may struggle to find a single tenant willing to pay a higher rent, HMO landlords can adapt by adjusting room prices slightly to maintain full occupancy and steady income.
6. Financing Options Are More Accessible Than Ever
Although HMO mortgages are often perceived as more complex than standard BTL products, the mortgage market has evolved. Specialist lenders now offer a wide range of HMO mortgage products with competitive rates and flexible terms.
At Mortgage Offer Ltd, we work with a panel of leading lenders to help clients secure finance tailored specifically to their HMO investment strategy—whether it’s their first venture or an addition to a growing portfolio.
7. Potential for Professional Management
Many investors are deterred by the idea of managing multiple tenants. However, there is a growing number of professional property management companies that specialise in HMO lettings. These services can take the hassle out of day-to-day operations while ensuring compliance with local regulations.
For landlords who want to be hands-off, this makes HMOs a much more manageable and appealing option.
Points to Consider Before Investing in an HMO
While HMOs do offer considerable advantages, they also come with added responsibilities. Planning permission, licensing requirements, and fire safety regulations are typically more stringent than with standard BTL properties. It’s essential to understand local council rules and ensure full compliance.
Additionally, the initial set-up cost of an HMO can be higher, due to necessary refurbishments and regulatory upgrades. However, the long-term income potential often justifies this investment.
Final Thoughts
In the current market, HMOs offer landlords an opportunity to achieve higher rental yields, diversify risk, and meet the growing demand for affordable housing options. While they require a more hands-on approach—or professional management—the returns can far outweigh those of traditional BTL properties.
If you’re considering investing in an HMO or expanding your existing portfolio, Mortgage Offer Ltd is here to help. Our expert advisors can guide you through the financing process and help you make a sound, profitable investment.
Get in touch today to discover how we can help you make the most of the property market.