Photo by Innova Property
There have been some recent news headlines stating the rental market is in crisis. But what does that mean, how does this impact the HMO industry, and how can landlords combat the current challenges and remain confident?
Don’t worry if you don’t know the answers to these as this is exactly what we’re going to cover in this blog post! Read below to find out about the current state of the private rented sector, including the HMO market, and what you can do to overcome the current challenges and remain confident!
Challenges within the Private Rented Sector
In a recent poll by SpareRoom, 94% of landlords said they had no confidence in the government’s approach to housing. The key reasons why included:
- Changes to government taxes/policy – 81%
- Future changes to taxes/legislation – 75%
- Increasing energy costs – 58%
- Increasing interest rates – 46%
With these sorts of numbers, it may come as no surprise that 36% of landlords polled said they plan to reduce their property portfolio this year. And 16% plan to leave the rental market entirely by the end of this year.
Demand for rooms is at an all-time high, while supply recently hit a nine-year low, according to SpareRoom. As a result of this and increasing costs, rents have increased by 32% in Q3 2022 compared to the same quarter in 2021. And with some landlords planning to leave the sector, this could put additional strain on supply and increase rents further.
Supply has been dwindling relatively consistently since 2017. Section 24, which stopped landlords from claiming tax relief on their mortgage interest, in addition to a 3% stamp duty surcharge for property investments, has also made it more difficult for property investors, particularly smaller landlords.
The Impact on the HMO Industry
The HMO industry is seeing a similar trend in supply and demand. With the diminishing levels of stock and the overall housing shortage across the UK, this continues to show the need for additional housing. And HMOs can be an effective way to produce more high-quality residential properties.
Matt Hutchinson, the director of SpareRoom, comments: “We’ve been running flatshare sites for over 20 years and we’ve never seen the market like this. The spike in demand will ease over time, but the real worry is the continued drop in supply. Landlords are leaving the market in alarming numbers and renters are facing an incredibly tough time.”
As the cost-of-living crisis continues to bite, this could lead to even more tenants looking for house shares, particularly as it’s a more affordable and flexible form of accommodation. Because of this, demand will likely continue to outstrip supply and rents are expected to continue to increase.
While HMOs have higher starting and operating costs, this could put some landlords off moving forward, particularly as costs increase further and as more legislation comes into effect. However, there’s an opportunity to earn more with HMOs than most types of property investments, especially when compared to single lets!
Because of this, I personally believe more investors will enter the HMO market in the coming years. And if not, it would only create even more opportunities for us! We all just have to be more cautious and remain diligent.
Advice for HMO Landlords
Here are my three top tips to overcome the challenges currently hitting the sector and improve your confidence as a HMO landlord!
1. Audit different areas of your business.
Take a look at all of your operational costs and systems and processes. Are there any expenses you could cut out or find more economical options for, such as certain subscriptions and retainers? Are there ways you can become more efficient to help you save time and money?
Prioritising these sorts of changes will only become more important to ensure you can remain profitable.
2. Get creative adapting and future-proofing your business.
Sit down and really assess how your HMO business needs to operate now and in the future. With so many changes afoot, you need to ensure your business is future-proofed, and you may need to get creative to ensure that!
Make sure your investments will not just work right now but also next year, in five years, and 10 years down the line. Stay ahead of the competition and keep up with any upcoming legislative changes. To do that effectively, you really need to become an expert on the HMO industry as a whole but also on your local market.
3. Don’t expect things to necessarily get easier.
As the industry is changing, it’s important you don’t expect things to get simpler or easier. The days of low-interest rates appear to be over, which means borrowing will be more expensive. And additional legislation and red tape will likely cause headaches further down the line.
So, be prepared for this! There are ways we can navigate all of these changes. Ensure you’re prepared for the many changes in the works and find ways to adapt and be agile.
For more advice and lessons on how to start, scale, and systemise your HMO business, 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!