UK Property Market: 2022 Predictions Set To Impact HMO Investors

2021 has been packed with ups and downs. The year started with a national lockdown to curb the spread of COVID-19. Despite that, it turned into a record-breaking year for the UK property market once spring came around.

There are still some uncertainties going into 2022, particularly with the Omicron variant quickly spreading across the UK and concerns with how this will impact the economy, employment, and, in turn, the property market. 

But there are also strong prospects for the year ahead, especially as the property market, and the HMO sector specifically, has remained resilient. There are a number of factors that impact the housing industry and HMO investment prospects in both good and bad ways. 

I don’t have a crystal ball, but I will draw on my 10+ years of experience within the HMO industry to give you the best possible idea of what 2022 could hold and tips for how you can prepare your HMO portfolio or business.

1. New Legislation

In 2022, a number of new rules and legislative changes are expected to come forward impacting HMO investors. A white paper on the Renters’ Reform Bill is set to be released with legislation expected to follow shortly. The bill is expected to scrap Section 21 evictions and introduce a lifetime deposit scheme for tenants.

Other new proposals have been unveiled by the government. A carbon monoxide alarm will need to be fitted in any room with a fixed combustion appliance, which includes gas boilers or fires. It also will be landlords’ responsibility to install, maintain and replace the alarms when told they’re faulty. 

Tip: Make sure you’re prepared for the new legislation that could come forward in 2022 and understand how these are set to impact your HMO portfolio. 

2. House Price Growth

While house price growth is expected to slow down after the record-breaking growth from 2021, ultimately, property values are still projected to continue increasing. As we are nowhere near our national targets for building new homes, there is still a shortage of housing, which will continue to put upwards pressure on house prices.

Areas of the Midlands and North of England are being forecast to see some of the strongest growth in the next year, as these regions have a greater capacity for growth.

Tip: Don’t think you’ll be able to sit around and wait for property values to drop. Do your due diligence and ensure you understand how to find and appraise deals, as this will require more persistence than ever from HMO investors in 2022.

3. Mortgages

In light of surging inflation, the Bank of England raised interest rates for the first time in over three years on 16 December 2021. The base rate had been at a record low of 0.1% since March 2020, but it has now been increased to 0.25%. 

This will make borrowing more expensive, and interest rates will more than likely increase further in 2022. However, rates are still historical lows and there are still very competitive deals out there.

Officials at the Bank of England are also said to be considering loosening mortgage lending rules. This could increase HMO investors’ buying power. However, some in the industry feel this change could further push up housing prices, further highlighting the need to be on top of analysing deals.

Tip: Prepare for interest rates to increase further, look at how this will affect you and your portfolio, and get yourself in a super lendable position.

4. Alternative Investments

With yields reducing in the buy-to-let sector, the HMO investment market is expected to continue outperforming other alternative investment strategies in 2022. Alternatives to buy-to-let, especially HMOs, will likely be appealing to more and more investors. 

With this, we expect the HMO industry to become more competitive as more investors enter the sector. The investment is asset-backed, and there’s strong demand from tenants, providing the sector the luxury of more security. Overall, it’s a phenomenal alternative investment strategy, and the sector still has a huge amount to give.

Tip: Don’t be fearful of increasing competition instead focus on creating a high-quality product. As HMO investors, we should all still be excited about the future of the market.

5. Rental Growth

The rental market, particularly the HMO sector, has gone from strength to strength. Demand for privately rented properties is at an all-time high, which has also led to rents rising at fast levels. 

While UK landlords have been experiencing high demand, tenants have seen a low supply of housing. The HMO market, in particular, has seen this trend in supply and demand, and this is expected to continue into 2022 as well. 

Tip: Demand outstripping supply will not apply to every part of the UK, which is why you need to ensure you’re doing your research and due diligence before choosing a location to invest in.

6. Young Professionals And Students

Professionals and students are set to remain strong and growing sectors in the HMO industry. Overall, young people are becoming more accustomed to co-living and house shares. 

Additionally, the start of the 2021-22 academic year saw a record number of students taking up university places. As more and more people are attending university throughout the UK, the student HMO market is expected to see further growth. 

At the same time, young professionals have become more transient than previous generations, and because of this, HMOs will continue to be an appealing option for them and property investors.

Tip: Be aware of the differences between investing in professional and student HMOs. Find out what aligns best with your investment strategy and goals.

7. Tenant Priorities

As many of our lives have changed in the wake of the COVID-19 pandemic, it’s important to keep up with the shift in what tenants want and need from their accommodation. Adapting to these changing trends can help you stay ahead of the competition and allow your property to even be more appealing to tenants.

Among young people, we’re seeing a continuing trend towards community, spending more time at home and working and studying remotely. Because of this, more tenants are looking for space to work or study from home and high-speed internet. There are also growing trends towards high-quality finishes and fixtures, low-maintenance outdoor space, and energy-conscious solutions.

Tip: To provide tenants with the properties they’re looking for, you might need to rethink your HMO properties. Be open to making changes and adapting your products.

While there are still uncertainties ahead, the future of the HMO market looks bright. Think realistically about what could lie ahead in 2022 for the HMO industry, and start preparing now.

Even if there are some factors that could make it more difficult to invest in HMOs, there’s still a unique opportunity to create great quality housing and build a profitable and sustainable portfolio as HMO investors. If you prepare for any potential changes and remain agile, you’ll continue to do really well in the HMO market.

For more helpful updates and insights on the HMO industry and resources on how to start, scale, and systemise your HMO portfolio, become a member of The HMO Roadmap today!

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!