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More portfolio landlords are turning to HMOs in 2020

UK landlords are planning to acquire houses in multiple occupation (HMO) more than any other property type over the next 12 months, according to research from Paragon.

The bank’s Q4 2019 PRS Trends report revealed that of the landlords planning to purchase property in the next 12 months, nearly a third (31%) plan to buy HMOs – up from 12% just three months earlier.

This is the highest level since Q2 2017 and suggests portfolio landlords’ tendency to purchase. A quarter said they plan to acquire flats, with 18% targeting terraced housing.

The research also revealed that 9% of portfolio landlords – those with four or more properties – plan to add to their portfolio over the next quarter, compared to just 1% of non-portfolio landlords.

Generally, HMOs offer landlords a higher yield but are more complex to manage. Paragon research shows HMOs achieve a yield of 6.5%, compared to an average yield of 5.6% across all property types. 

Richard Rowntree, director of mortgages at Paragon, comments: “The private rented sector needs to grow to meet increasing levels of tenant demand and it’s clear that portfolio landlords will drive that growth.”

“Not only are they looking to build their portfolios, they are also looking at more complex types of property that will deliver higher yields, such as HMOs.”

Overall, landlord confidence mostly remained weak during the quarter, although there was a slight increase in landlords’ confidence compared to Q3 2019. Paragon’s ‘Confidence Index’ – which is produced by landlords ranking confidence out of 10 – recorded a score of 6.2 during this period, the highest level for a year and up from 5.8 on the previous quarter.

Rowntree adds: “Although still fragile, hopefully we are starting to see some green shoots with regards to landlord confidence. Landlords have encountered significant regulatory and fiscal changes in recent years and we hope to now enter a more settled period.”

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