Reach your savings goals with our simple, straightforward savings accounts and cash ISAs.
See all of our reviews
Have your cake, and eat it too, with our award winning Cash ISAs
Discover our range of specialist buy-to-let and residential mortgages, available through intermediaries.
If you're a landlord, you can only apply for our mortgages through an Independent Financial Adviser. Click below to find an advisor.
Don’t forget, our discounted buy-to-let products benefit from our Track to Fix feature!
Find the right finance to get you moving with our tailored business and personal loans.
Developed in response to your feedback about the need for speed, simplicity and accuracy of lending applications, you can now log in and apply in minutes.
Find all the latest news, stories, insights and tips from Paragon Bank.
That’s the key finding of Paragon Bank’s report into how the HMO market is evolving. HMO landlords told us that tenants today expect en suite bathrooms, larger rooms, high speed broadband and quality furnishings.
An HMO is a property consisting of at least three people who are not from one household (ie a family) and share facilities, such as a central living space or kitchen.
In ‘The HMO Report’ landlords identify a flight to quality as a trend characterising the past year, with 48% saying they’d seen growing demand for high end HMOs and 45% saying demand from young professionals was up over the past year. Just under a quarter, 23%, of landlords also said HMOs were appealing to older, affluent tenants.
Growing demand for high end HMOs
Demand from young professionals up over the past year
HMOs were appealing to older, affluent tenants
The majority of landlords said demand for higher speed broadband had increased over the past year (56%), while a significant proportion of tenants were seeking larger rooms (39%), en suite bathrooms (53%) and better quality furnishings (39%). Elsewhere, 35% of landlords said tenants were asking for office facilities to enable home working.
Demand for higher speed broadband had increased over the past year
Tenants seeking larger rooms
Tenants seeking en suite bathrooms
Tenants seeking better quality furnishings
Tenants seeking office facilities
The investment case for HMOs is compelling, with 47% of landlords with an HMO agreeing that they offered better rental yields than other residential rental property. Some 40% said HMOs offered better financial protection from voids, while 53% said there was no material difference in capital gain between single units and HMOs, making income the deciding factor.
HMOs offered better rental yields than other residential rental property
HMOs offered better financial protection from voids
No material difference in capital gain between single units and HMOs
The largest proportion of HMO landlords, 42%, reported net yields of over 10%, while 64% reported yields of 8% or over.
At 72%, the majority said maintenance, insurance and utilities accounted for less than 25% of their gross rental income across their portfolios. However, landlords also spend a high proportion of their rental income on the maintenance of the HMO. Nearly two thirds, 63%, of landlords spend over 10% of rental income on annual property maintenance.
Reported net yields of over 10%
Reported yields of 8% or over
Maintenance, insurance and utilities accounted for less than 25% of their gross rental income
Spend over 10% of rental income on annual property maintenance
Nearly half, 46%, of tenants fell into the young single bracket, with 47% students and 41% white collar, clerical or professional workers. Elsewhere, 27% of tenants were manual workers, with 15% represented by older singles. Smaller groups included Universal Credit Claimants (9%), families with children (4%) and migrant workers (4%).
One in five tenancies were in place for two years but by far the most tenancies were for one year. Just 2% of tenancies lasted longer than five years.
Young single tenants
Students
Professionals
Manual workers
Older singles
Universal Credit Claimants
Families with children
Migrant workers
Tenancies lasting 5 years or more
Given shifts in tenant demand and the higher yields on offer, HMO landlords are more likely to purchase additional stock than sell, according to the research. Over four in 10 HMO landlords, 43%, said they planned to buy an additional HMO property in the next six months. There is roughly an equal split (22% vs 21%) in the proportion of landlords who plan to buy an existing HMO against those that will buy another type of property and convert.
In terms of those looking to trim properties, 4% said they planned to sell all of their HMOs and exit the sector, with 8% intending to reduce their HMO holdings in the next 12 months.
Planned to buy an additional HMO property in the next six months
Plan to buy an existing HMO
Will buy another type of property and convert
Planned to sell all of their HMOs and exit the sector
Intending to reduce their HMO holdings in the next 12 months
Rapidly rising energy costs stood out as the frontrunner when HMO landlords were asked what their biggest challenge had been over the past 12 months. Some 64% of those surveyed said higher energy bills had been a concern, reflecting the fact that 62% of tenancies in HMOs are inclusive of all bills including energy, broadband and council tax. A further 14% include utilities bills only – gas, electricity, water and council tax.
While one in five landlords said they had no plans to pass higher energy bills to their tenants, more than half do plan to increase rents to cover the higher cost of living. Some 19% have already raised their tenants’ rents.
Higher energy bills had been a concern
Tenancies in HMOs inclusive of all bills including energy, broadband and council tax
Tenancies in HMOs including utilities bills only
No plans to pass higher energy bills to their tenants
Have already raised their tenants’ rents
Download the report
Head officeParagon51 Homer RoadSolihullWest MidlandsB91 3QJ
Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551