HMO and multi-units achieving the highest rental yields

Michael Lloyd

May 11, 2018

Landlords running portfolios comprising houses in multiple occupation (HMO) and multi-unit freehold blocks (MUFB) are achieving the highest rental yields, despite market averages dipping slightly in the first quarter of the year.

Research for Precise Mortgages has found average rental yields for HMO are the highest across all types of property at 7.1%, 1.3% above the market average.

Yields for multi-unit freehold blocks are the second highest at 6%, highlighting the opportunities for landlords to refocus portfolios, the study by BDRC Continental found.

Alan Cleary, managing director of Precise Mortgages, said: “As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets and rental income is more secure even if one tenant leaves a void.

“Experienced landlords are looking to rebalance their portfolios and there is a real opportunity for brokers to support them to work with specialist lenders who are prepared to be flexible and have expertise across the widest product set.”

Across all property types average yields dipped slightly in Q1 2018 to 5.8% from 5.9% in the last quarter of 2017 and are now at the same level as Q1 2017.

The highest average yields of 6.7% were achieved on portfolios of between 11 and 19 properties, underlining the continued rise of the professional landlord. By contrast those with just one property achieved yields of 4.8%.

On a regional basis, landlords with portfolios in the North West reported the highest rental yields at 6.7%. Central London portfolios produced the lowest average yields at 4.8%.

Precise Mortgages’ HMO product range includes 2-year tracker rates from 2.75% and 2-year fixed rates from 3.09% as well as lifetime trackers from 3.50% and 5-year fixed rates assessed on pay rate from 3.69%.

The portfolio lending limit has been increased to £10m with a maximum of 20 properties with Precise Mortgages and unlimited with other lenders.

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