Major BTL lender reveals significant landlord switch to HMOs

Shawbrook says its lending book saw a 10% rise in the number of loan applications to fund HMO purchases as landlords seek safe havens.


Landlords are increasingly turning to HMOs as a way to keep pace with market rents and address economic uncertainty.

HMOs made up 27% of all Shawbrook’s buy-to-let business in both 2022 and 2023 but this has already risen to 34% in 2024. The lender reports that while some landlords are diversifying their portfolios, there has also been a rise in HMO business from non-portfolio landlords, up from 17% to 21% over the same period.

norkett octane hmos
Daryl Norkett

As investors have dealt with years of challenges stemming from the pandemic and economic uncertainty, HMOs are proving to be a sound strategy, explains Shawbrook’s real estate proposition director, Daryl Norkett.

“HMO rental yields are more easily able to afford mortgage lending in a higher interest rate environment, and the regular turnover of tenants allows landlords to stay on track with market rents,” he says.

£593 per room

Octane Capital also reports that the average HMO commands a monthly rent of £593 per room, or £2,372 per month if converted for four occupants. As a result, the average yield from a four-bed HMO is 8.1% – far higher than the 4.4% generated by a regular rental property.

The option to reconfigure properties and the ability to turn lower yielding single lets into higher yielding HMOs has clearly been a strong draw over the past year or so, adds Norkett, as landlords adjust their businesses to succeed in a tougher economic environment.

“We have already improved our HMO criteria to enable landlords to secure larger maximum loan sizes,” he says. “While we have already seen a modest increase in HMO activity, once the predicted interest rate cuts finally arrive, we’d expect to see significant growth in this sector.”

Read more about HMOs.

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