12-06-2024

The best places to buy an HMO in the UK?

In this article, we look at the Top 10 places to buy an HMO in the UK.

We will help you identify the best areas for HMO investment in the UK.

This list has considered many factors including location, yield, regeneration, demand and other factors, using thorough market analysis and property investment principles to compile our top 10 places to buy an HMO in the UK.

Introduction to HMO Investment

HMO investment, or investing in Houses in Multiple Occupation, has rapidly gained traction among property investors in the UK. This investment strategy is particularly appealing due to its potential for higher rental yields compared to traditional single-let properties. By renting out individual rooms to multiple tenants, HMO investors can maximize rental income from a single property. The success of HMO investments often hinges on selecting the right location—areas with strong rental demand, affordable property prices, and good transport links tend to offer the best opportunities. With careful market research and a focus on high tenant demand, HMO investors can achieve higher rental yields and benefit from long-term capital growth, making HMO investment a compelling option for those looking to diversify their property portfolio.

Criteria for a good location for HMO investment

If you are looking for a good HMO property, the yield can help you decide if the rental income is worth the outlay to purchase the property. When evaluating the rental income potential, consider both average property prices and average yield in the area to determine if the investment is justified.

We have seen an increase in rental yields over the last 12 months, outpacing property values.

When assessing a place to invest in an HMO there are several key components any investor must consider.

  • Distance from your home address. – How accessible is the property from your home address, consider how often you may need to visit the property. If you are a hands-on landlord managing lettings and maintenance yourself then this will bear more weight than a hands-off landlord using a full-service lettings agent.

Purchasing property in an area you can access regularly can help you build up your network with sales and lettings agents. A good network of property professionals can help you find off market opportunities.

  • Your local knowledge of the area. – How well do you know the local market dynamics in that area? Local dynamics can include changes to planning restrictions as well as new infrastructure that may affect letting demand such as new hospitals, university expansion or head offices for a major employer, all of which can change the letting dynamics of an area. Infrastructure developments can also significantly impact property values and tenant demand.

Local knowledge of an area could be because of having children who have studied & lived in the area, perhaps you grew up in or have family in the area. Local knowledge can help identify good and bad areas of a City/Town and keep informed of new developments that affect property prices and tenant demand.

  • Tenant demand. – Tenant demand is crucial as you wish to avoid void periods. Know who you will rent to and what demand there is in the area. Are there any imminent changes to the make up of an area which could bring in fresh demand for letting for your HMO. Being aware of a local councils housing plans is a useful way to identify upcoming areas. Also consider regeneration plans for the area and changes to article 4 areas. The presence of affordable housing options and overall housing affordability are important drivers of demand for HMOs, especially in areas with growing populations or large student communities. Good transport links and proximity to amenities can help tenants save money on commuting and daily expenses, making the area more attractive.
  • Article 4 planning. Article 4 requires a property to go through planning to change from residential Class 3 to HMO use class C4 and is designed to control where and how many properties are let as an HMO. Ensuring regulatory compliance when buying and converting a property into an HMO before article 4 regs come into force can be a shrewd move.

Conducting your own research and having a clear HMO investment strategy are essential to identify a good HMO investment area, maximize rental yield, and ensure long-term success.

HMO Properties and Rental Yields

One of the main attractions of HMO properties is their ability to deliver higher rental yields than standard buy-to-let investments. On average, HMO properties in the UK can achieve rental yields of 8-10%, significantly outpacing the 3-5% typically seen with traditional rental properties. This is largely due to the shared housing model, where multiple tenants each pay rent for their own room, resulting in a greater overall rental income. University cities and major towns with a high demand for shared accommodation are especially lucrative, as they offer consistent demand and minimize the risk of void periods. For property investors seeking to maximize their returns, targeting HMO properties in these high-demand areas can be a smart move, ensuring both strong rental yields and a steady income stream.

University Cities and HMO Investment

University cities stand out as some of the best locations for HMO investment, thanks to their large student populations and vibrant rental markets. Cities such as Manchester, Birmingham, and Leeds attract thousands of students each year, creating a consistent demand for shared accommodation. This steady influx of tenants means HMO investors can enjoy reliable occupancy rates and reduced risk of rental voids. Beyond students, these cities also appeal to young professionals drawn by diverse employment opportunities and a dynamic local economy. The combination of a thriving rental market, large student populations, and a strong jobs sector makes university cities ideal for HMO investment, offering both consistent demand and the potential for long-term growth in property values.

Regeneration Areas and HMO Investment

Regeneration areas are increasingly popular among HMO investors seeking affordable property prices and strong growth potential. Cities like Sunderland, Burnley, and Newcastle are undergoing significant redevelopment, with new businesses, improved amenities, and enhanced transport links transforming the local landscape. These changes not only boost the appeal of these areas for tenants but also create opportunities for property investors to purchase HMO properties at lower entry prices. As regeneration projects progress, demand for quality housing rises, driving up both rental income and property values. For HMO investors, targeting regeneration areas can be a strategic way to capitalize on affordable property prices today while positioning for capital appreciation and increased rental demand in the future.

HMO Investors and Market Trends

The HMO market in the UK is dynamic, shaped by evolving market trends and regulatory changes. Successful HMO investors stay informed about shifts in tenant preferences, local housing policies, and broader economic factors that impact rental yields and property values. Adapting to new regulations, such as licensing requirements or changes in taxation, is essential for maintaining compliance and protecting returns. By conducting thorough market research and remaining agile in their investment strategy, property investors can navigate the complexities of the HMO market and continue to achieve higher rental yields and long-term capital growth. As demand for affordable shared housing remains strong, HMO investment is set to remain a key strategy for property investors looking to maximize returns in the UK property market.

Our top 10 places to buy an HMO in the UK for property investors

Considering all the above factors and taking data from our landlords as well as data from the market, these are our top 10 places to invest in an HMO property in the UK. These cities represent some of the best HMO investment areas and major cities in the UK, offering strong rental demand, diverse economies, and excellent opportunities for HMO landlords.

  • Edinburgh

Edinburgh, Scotland’s capital, is the UK’s most economically productive city outside London. Unemployment has halved in the last decade and average pay is higher than the other 8 big Cities outside of London.

Edinburgh has six universities with over 55,000 students. Full time students make up over 12% of Edinburgh’s population, creating high rental demand, especially for student housing. Edinburgh is consistently ranked among the top cities in the UK for student accommodation.

Best areas for HMO in Edinburgh are Bruntsfield, Marchmont, Morningside & Newington

The average house price in Edinburgh is £334,000.

All house price data in this article is taken from rightmove.

  • Cardiff

Cardiff has good transport links, three universities and has undergone a lot of regeneration in recent years. University expansions and ongoing regeneration are creating demand for HMO tenants and student housing, making Cardiff a favourite among many of our landlords with properties in the Cathays area of Cardiff. There is a good blend of property value and yield in Cardiff.

Best areas for HMO in Cardiff are Cathays & Plasnewydd.

The average property price according to Rightmove is £291,000.

  • Durham

Durham is a beautiful City surrounded by the river Weare. It is home to Durham university and the HMO properties here are often let to students, resulting in strong HMO demand. Durham is also considered an affordable city for investment property, appealing to landlords seeking value.

Best areas for HMO in Durham County are in Durham City in close approximation to the university. HMO yields achieve around 9% gross here.

The average house price in Durham is £194,036 making it a reasonably priced City for most landlords.

  • Cambridge

Cambridge is of course home to one the best universities in the world. The Cambridge university ranks 5th in the world in the QS rankings. The student population is over 24,000. Cambridge property prices are consistently strong, and the city is known for its strong capital growth potential, making it a top HMO investment area.

According to the ONS house prices increased 3.5% year on year making this a strong area for capital appreciation. Rents were up to for the same period increasing by 7.6%.

The average house price in Cambridge is £605,261.

  • Bristol

Bristol is a fantastic place to live, don’t just take our word for it, this article in the Independent ranked Bristol as one of the top places for young people to live outside of London. The city has two world-class universities. Bristol is home to some major employers such as Ovo Group, Airbus and Hargreaves Lansdown. Bristol is a vibrant and trendy city with a highly skilled workforce, making it attractive for HMO landlords and young professionals seeking opportunities in a dynamic environment.

Some of the best areas for HMO in Bristol include Southville, Southmead, Bedminster, Filton & Clifton.

Bristol ranks number 1 in Aldermore’s buy to let city tracker for 2024.

The average house price in Bristol is £384,414.

  • Manchester

Manchester is the largest metropolitan city in the North West and provides a healthy, diverse economy expected to grow by 2.5% from 2024 – 2026 (3rd place behind London and Birmingham). The city is known for its high rental demand, especially among students and young professionals. Property prices in Manchester remain below the national average, offering value for investors.

Manchester has a robust job market, and a large student population. There are over 100,000 students living in Greater Manchester including 27,000 foreign students.

With a strong economy and high student numbers demand for HMO is good. Manchester ranks second in Aldermore’s buy-to-let city tracker.

The average property price in Manchester is £300,282.

  • Birmingham

Birmingham has the largest economic output outside of London, mostly dominated by the service sector and a significant finance sector supporting the local economy. The city is also home to 8 universities, including Birmingham City University, which drives strong student housing demand. The city is in the process of major regeneration with billions being spent on the city centre, railways and the airport.

A report from JLL expects property prices to increase 27% by 2026 making Birmingham one of the top places in the UK to invest in property.

The average house price in Birmingham is £272,937.

  • Portsmouth

Portsmouth is a university town and with over 25,000 students the area has strong tenant demand. According to the ONS private rental prices increased 12% year on year in Portsmouth. The city’s primary focus is on maximizing rental yield, making it especially appealing to HMO landlords seeking strong returns.

The best HMO areas are central areas such as Southsea and Fratton.

Portsmouth makes it into Aldermore’s top 10 buy-to-let city tracker at number 7.

The average house price is £283,803 in Portsmouth.

  • Coventry

Coventry University brings in over 30,000 students and that demand gives it the number 3 spot in Aldermore’s buy-to-let city tracker. The city is recognized for its affordable housing options and is among the most affordable cities for HMO investment, which is vital for meeting the needs of HMO tenants.

The most popular areas for HMO are in the Northeast of the city between Coventry college and Coventry University.

According to the ONS house prices are up 2.4% year on year and rents are up 10% over the same period.

The average house price in Coventry is £241,809.

  • Sunderland

A University City with some 25,000 plus students. Sunderland makes our list as it ranks top for yield in a 2024 Zoopla report with a yield of for an average BTL (standard AST let) of 8.96% (average rent £626pm and property price £83,842). The North East is a region with strong HMO investment potential, and Sunderland stands out as one of the most affordable cities with high rental yields and diverse tenant demand, making it attractive for HMO landlords.

The average property price is at the lower end of the scale for the UK and therefore may be attractive to those on a smaller budget.

So, there we have it, our top 10 places to buy an HMO property in the UK. Hopefully this article has given you some insights and is helpful in making your HMO investment decisions. Remember, the HMO investment journey involves understanding the unique characteristics of each city, and HMO landlords can benefit greatly from targeting the right HMO investment areas and cities in the UK.

Why you should use an HMO mortgage Broker.

Using an HMO mortgage broker can make a significant difference when arranging finance for your HMO investment. HMOs are a specialised property type, and not all lenders offer mortgage products tailored to their unique requirements. A dedicated HMO mortgage broker understands the complexities of HMO lending, including the specific criteria lenders look for, such as rental income projections, tenant numbers, and local licensing regulations. This expertise helps you access the most suitable mortgage deals that might not be readily available on the open market.

An HMO mortgage broker can also save you valuable time and effort by navigating the often complex application process on your behalf. They have established relationships with a wide range of lenders, including specialist lenders who are more familiar with HMO investments. This means they can negotiate better terms, competitive interest rates, and flexible repayment options tailored to your investment strategy. Additionally, brokers can provide advice on structuring your mortgage to maximize tax efficiency and cash flow, essential factors for successful HMO investment.

Furthermore, using an HMO mortgage broker ensures you stay compliant with all regulatory requirements. HMOs often require additional documentation and licensing approvals, and a knowledgeable broker can guide you through these steps, reducing the risk of delays or application rejections. For first-time HMO investors or those expanding their portfolio, working with a specialist broker provides peace of mind, knowing you have expert support to secure the best financing for your property investment.

Fox Davidson are a specialist HMO Mortgage Broker. We have been advising clients on HMO funding options for property across the UK since 2013. Get in touch today to discuss your funding requirements.