Over the past decade, the total value of homes in England has increased by 80%, according to research by property platform Boomin. This growth has primarily been driven by the increasing value of homes in the private rented sector.
Currently, the combined markets of privately rented and owner-occupied properties come to a total value of £7.4trn. Homes in the rental sector have increased by an impressive 105% in market value over the last 10 years, compared to a 75% increase in value for the owner-occupier market.
The total market value for property investors and landlords overall comes to £1.5trn. This data illustrates the strong value of long-term investment in the private rented sector, particularly with the HMO sector as investors can earn strong rental yields as well.
The Importance of Having a Long-Term Frame of Mind
With this strong value, prevalent within the private rented sector across decades, this shows the importance of having a long-term frame of mind with your property investments. Investing in your HMO properties for the long term can allow you to earn more in the long run.
Overall, if you’re investing in the right properties in the right locations, there’s a good chance that you’ll earn capital appreciation over time. Don’t rely solely on earning capital gains with your properties. However, this can provide an opportunity to extract value, recycle capital, and scale your HMO business.
Finding HMO deals where you can genuinely add value can also allow you to earn strong returns, especially in the long-term, so keep this in mind when looking for your next HMO property.
House Prices Projected to Rise Even Further
Property prices are continuing to increase. Last year was even the strongest calendar year for UK house price growth since 2006, according to data from Nationwide. Annual house prices increased by a whopping 10.4%. The average house price is now £254,822, which is a rise of almost £24,000 in only a year.
At the same time, with the current housing shortage, we are nowhere near our national targets for building new homes. Because of this, it’ll likely continue to put upwards pressure on house prices. While house price growth is forecast to slow down after the record-breaking growth from last year, ultimately, property values are still expected to continue increasing.
And overall, property values tend to go up over time. Personally, I don’t see a point in time where properties are going to be significantly cheaper than they are now. Because of this, it could continue to be difficult for many people to get their first foot onto the property ladder.
Tenants Are Renting for Longer
Because of escalating house prices, many modern-day buyers have been priced out of the market until later in life, resulting in a lifestyle change towards renting for longer. This is where HMOs come into play, particularly with the rise of co-living, and the HMO sector plays an important role in helping fulfill this demand.
Some of the most common reasons tenants choose co-living is:
- It tends to be cheaper.
- Being surrounded by other people can help them feel less isolated.
- It provides flexibility that many young people are prioritising.
Young people are more transient than previous generations, and some enjoy the flexibility that comes with renting, while others can only afford to rent.
As it’s only becoming more and more challenging for people to buy their first property, many are renting for longer, including HMO tenants. With the current squeeze on people’s finances due to skyrocketing inflation and higher household bills, this trend is only expected to increase in the next few years.
Michael Bruce, CEO and Founder of Boomin, says: “Many are now opting to rent for longer periods and until much later in life as the ever-escalating cost of buying prices them out of the market.
“So, while the housing market still reigns supreme in terms of total size and value, there has been a far greater level of value growth across the private rental sector to accommodate this new way of living and this trend is apparent across all regions of the nation.”
Opportunities within the HMO sector
HMOs provide a way to create new rental units. This can help alleviate pressure due to the housing shortage, and it provides an opportunity to bring forward high-quality housing, which is much needed in many areas of the UK.
With this growing demand, the future of the HMO investment market looks positive. There’s an unprecedented opportunity to not only create great quality housing but also build a sustainable and profitable portfolio for the long term.
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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!