With most COVID-19 restrictions having been eased, the private rented sector is seeing a surge in activity. A number of UK landlords are experiencing high demand from tenants, while tenants are facing a low supply of private rental properties.
The HMO market in particular is also seeing this trend in supply and demand. With the decreasing levels of stock and the overall housing shortage across the UK, this continues to show the need for more housing. And HMOs can be an effective way to bring forward more high-quality residential properties.
In this blog post, we’ll cover why the gap in supply and demand is widening, why there is a growing need for more rental properties and the benefits of investing in HMO properties right now.
High Demand and Low Supply
Across the private rented sector, tenant demand is remaining high as the supply of good quality accommodation continues to fall. And recent data shows this is happening in the HMO market as well. According to SpareRoom, there are currently more ads on the platform from people looking for rooms than there are for rooms available. This is just the third time this has happened in the past six years with the last time being in 2019.
There has been strong demand within the student HMO market with the hopes that the university term will return to more normality. Additionally, there has been growing demand from young professionals too.
Overall, this growing demand is expected to continue in the coming years as younger people are becoming more accustomed to co-living. The average age of renters has even been on the rise, meaning tenants are renting for longer than previous generations.
Demand will likely continue to outstrip the rate at which new properties come onto the market. However, keep in mind that this will not necessarily apply to every single area of the UK. Do your due diligence and thoroughly research the location you’re looking at investing in.
The Need for More Housing
Across the UK, we still aren’t anywhere near our targets for building new homes. There has been a housing shortage, and this is expected to continue for at least the next 5 to 10 years. In 2019/20, the total housing stock in England grew by 244,000 homes, according to government data. This is approximately 1% more than the year before. Current estimates show the number of new homes needed in England is 345,000 a year.
The supply of housing has been growing in recent years, but it’s still lower than what is needed. The government has set a goal of creating 300,000 new homes a year by the mid-2020s. However, many have said this is unlikely to be achieved at the current rates of growth in the homebuilding industry.
These figures further show the continued need for more housing to be brought forward. And HMO properties are one of the areas where we can create new rental units. This can help alleviate pressure due to the housing shortage, and it provides an opportunity to bring forward high-quality housing.
The Benefits of Investing Now
There are a number of reasons to consider investing in HMOs right now. This includes this strong demand and the need for more housing we’ve been talking about. But there are also strong capital growth prospects with house prices expected to grow in the coming years, which can be really where property investors achieve higher returns.
At the moment, debt is also cheap and easy to access. There is a growing number of mortgage deals available for HMO investors. Lenders have been gaining confidence as demand from investors and landlords has also been increasing.
The cost of borrowing is historically low. This means there are competitive deals out there with low interest rates, which can help you earn a higher return on investment when using a mortgage to purchase a HMO.
Following the COVID-19 pandemic, we are seeing an increase in inflation. Inflation often gets a bad rep, but it’s not always a bad thing. It’s important to consider what inflation means for property investors. For instance, inflation often pushes up house and rental prices.
While the cost of living increases through inflation, wages need to rise as well so that the same percentage of earnings spent on housing can remain static. This is what we are currently seeing as wages are increasing across a number of fields and industries. So this could mean that some property investors will earn more from their HMO properties during this time.
The future of the HMO investment market looks very bright. There’s an opportunity to create great quality housing that is much needed in many areas of the UK. This investment can also help you build a sustainable and successful property portfolio – where you may even be able to replace your income.
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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!