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As we embark on a new year, it’s worth ensuring you’re up on the latest predictions for the HMO market. Here we’ll cover some of the main predictions for the industry.
I’ll draw on my 12 years of experience within the market to give you the best possible idea of what 2023 could hold and tips to ensure your HMO business remains sustainable and profitable throughout the next year and beyond!
Predictions for the Year Ahead
There are a number of factors that will impact the HMO market in 2023. Here are a few predictions for key areas within the industry!
House Prices
There has been so much speculation about what house prices could do during the next year, and it’s always hard to predict, especially with the ongoing economic uncertainty and volatility. Naturally, this will also vary across the country.
Over the last year, house prices have increased by 7.8% across the UK, according to data from Zoopla. Growth was slower in 2022 than in previous record-breaking years, and this could slow down further in 2023. But prices aren’t expected to crash.
As there is still a shortage of housing, this could continue to put some upwards pressure on house prices. But it’ll likely depend on what happens with mortgage rates and inflation.
Rental Supply & Demand
Average UK rents have hit another record level, and this could continue into 2023. As supply continues to dwindle in the rental market and as landlords’ costs keep increasing, this could cause rents to rise further.
There’s an ongoing imbalance between supply and demand. And many are predicting demand for HMOs to increase even more, particularly as it’s a more affordable form of accommodation.
But with rent rises and other increasing costs due to surging inflation, many landlords are concerned about whether tenants can keep up with their rent payments. This will likely be a top worry for HMO landlords moving forward.
Mortgage Rates
Historically low mortgage rates appear to be over as interest rates have increased dramatically over the course of the past year.
The Bank of England increased the base interest rate at every rate-setting meeting in 2022, and the current rate of 3.5% is the highest it’s been since the financial crisis of 2008. Further rises to the base interest rate are expected in 2023.
Mortgage rates impact how much you can borrow when buying a property and your monthly payments. So, what happens to mortgage rates will continue to have a significant impact on the property market and us as HMO investors.
Legislation
A number of new legislative changes and red tape have come into effect during the last couple of years, and more are expected to be brought forward in 2023 as well. Additional licensing schemes for HMOs will likely come into effect in certain areas across the UK.
A few of the other big changes that could come into play are the scrapping of Section 21 evictions, the cancellation of fixed-term penalties, and the creation of a decent home standard for the private rented sector.
Recently, Housing Secretary Michael Gove said that the Renters Reform Bill “should come in 2023”. But there has been no confirmation on specific timescales, so we all need to be prepared for this.
Energy Costs
Energy costs have been the main talking point throughout 2022 as prices have soared, and this will likely continue throughout this next year.
The Energy Price Guarantee scheme currently limits the average household energy bill to £2,500 per year. This will be in place until March 2023, and after that, the energy price cap is set to be increased to £3,000 per year.
You’ll need to stay up with what’s going on in the energy market to ensure you’re on the best possible deal for your HMOs where you include utility bills in rent.
Tenant Priorities
It’s key to also stay on top of what tenants want and need from their accommodation. This can help you stay ahead of the competition, and it may even allow your properties to be more appealing to tenants.
As the cost-of-living crisis and inflation continue to have a massive impact on tenants, these factors could impact what they look for in their rental properties. Energy efficiency will likely be a top priority for many tenants moving forward.
How to Ensure Your Business Remains Profitable & Sustainable
No matter what’s ahead, you need to be prepared. And there are some things you can do to ensure your HMO business is sustainable and profitable throughout 2023 and beyond! Here are a few things to keep in mind.
1. Be realistic.
With rising costs, it’s important to be realistic about this and what you need to do to manage any of the challenges that lay ahead. You also need to understand what you can do to reduce overheads and increase profits where possible, but again, be realistic with what is actually possible.
2. Be agile.
Ensure you can make changes to your HMO business when necessary. Being agile allows you to act quickly and be able to pivot if and when you need to. So, start thinking about how you can remain sustainable, and be ready for further changes ahead!
3. Think long-term.
There is so much value in the HMO sector, and investing in HMO properties for the long term can even allow you to earn more in the long run. And during times of economic uncertainty, thinking long-term is especially key. You need to make sure your portfolio works not just today but also years down the line!
4. Regularly assess your business.
With a number of important factors impacting the industry, it’s crucial to assess your HMO business frequently. This allows you to understand how your portfolio and business are performing and where improvements can be made.
There are of course uncertainties ahead, but the future of the HMO market still looks bright. There could even be more opportunities than we’ve seen in quite some time!
For more insights on the HMO industry and resources and lessons on how to start, scale, and systemise your HMO business in 2023 and beyond, sign up for The HMO Roadmap today!
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!