Watch: What does the latest data say about the UK HMO market?

Speaker (00:07.119)

Thank you so much, everybody. And it’s lovely to see that it’s so warm, because I was thinking you were all fanning me. But it’s actually the heat, isn’t it, today? So the HMO market, there’s room for change. Change is good. Change means there’s opportunity. And that’s where we can all start from. So let’s have a look. Something that changes on a regular basis, interest rates. Now, interest rates have been pegged at 4 and 1 for a little while. And we all think.

the Bank of England or Keir Starmer are in charge of our interest rates. But they’re actually not. And a little tip here for you is to go and look at what’s happening in America. If you track what America has done for the last 50 years, we have followed their interest rates with a slight lag. So go and follow what America is doing. Another way of working out, your mortgage rates going to go down, is to look at the Sonya rates.

Now these rates here, I don’t think we’ve got to laser, so I’ll just turn up to the screen. The one year rate is telling us it’s 3.76. So the money market is predicting the interest rate is going to get down as an average over 12 months to 3.7. The sweet spot is two years where it’s saying 3.5.

But when we look at five years, it’s gone up to 3.6. So over a five-year term, we’re expecting rates to sort of come down to about 3 and 1 half and probably hang there for most of the next five years. So there is room for improvement. But do I think the next meeting of the Bank of England will be a reduction in August? No, I don’t. I think it’ll be deferred a little bit further out. So inflation, this is really important to us.

Why is it important? Not only does it affect the repairs, the maintenance, and the conversion costs of what we’re doing with the properties, but it actually affects our tenants. Our tenants pay rent. The inflation figure generally is what their bosses decide is their pay rise. And I’ll come on to why that’s really important in a later slide. But what we can see is

Speaker (02:17.506)

We’ve come down from that heady 12%, 10 % of 12 months ago, and we’re on a trajectory where we’re hovering around 2 and 1 So that’s a long term trend.

Tenant demand, HMOs, year on year, and I’ll share with you a graph in a short while, demand is up 12%. Now that’s actually contrary to a conversation I was having with an experienced HMO landlord a minute ago that was saying, I feel in my local area demand is on the way down. I’ll evidence with data why demand is on the way up in a minute. But this is driven by affordability.

I mentioned about the pay rises. Tenants can only pay you rent when it’s in their bank. And what we’re seeing is people going, I can’t afford the rent coverage of 30 % on a single let. The best I can do is go to a HMO if they’re in a flat. people are trading down. And we’re seeing this across the whole market, people trading down. And people are looking for better quality HMOs. So longer tenancies.

We’re also seeing that with the data, and I’ll evidence that with a nice little graph towards the end of this talk. What we’re seeing is it’s gone up from 12 months as an average tendency to 14.2. Now, I know we don’t do 14.2 ASTs, but 14.2 is the average that people are staying in their HMO. And what we’re also seeing is a growth in the professional and student markets in particular. Still, student markets surprises me, but it keeps on and up.

trajectory. So affordability pressures, I’ve just mentioned that. Rent to income ratio is what most letting agents will look at and they’ll look for a 30 % coverage. In other words, the rent cannot be more than 30 % of their salary. If it’s more than 30 % of their salary, there’s a high risk that that will lead to an arrears situation for you.

Speaker (04:23.629)

Now what’s also interesting is there’s 1.3 million people currently on the social housing list. Now when you consider there’s only 60 million in the population, that’s an awful lot. And then you take children out of the population, that is an awful lot of people on the social housing list. And why is that happening? Affordability. People cannot afford on their current salaries to get into their own home. And that is then being evidenced by

almost half of under 35s rent. They don’t own. Now, if you went back 30 years, that was around 15 % rented and didn’t own. So it’s a big transitional shift in what’s happening in the marketplace. Owning your assets and renting as a landlord is actually the way to create yourself wealth and future stability. The cost of living.

it’s still remaining high. People are still squeezed. They’re struggling with what they do. So rental yields. This is one that people bang on about. And I’m actually just going to put that up there. But I’m going to talk about something completely different to rental yields. I often look at what I do in property. And I look at my return on time and return on effort. Now, you won’t often hear people talking about return on time and return on effort.

If it’s going to take you three months to do something and get the cash in the bank versus 12 months, is the yield worth waiting the extra nine months? Because this is where people often go down a rabbit hole and spend too much time either doing a conversion or stuck in the wrong project before realizing it. And then that trickles down into your return on effort. So HMOs. This is…

a really, really interesting one. What we’ve got is 362,000 registered HMOs in the UK. sorry, England and Wales. Scrap the UK, not Scotland. England and Wales. What we’ve got is 87,000 of those are for sale. Now, when you couple that with the data that is saying HMO demand is growing, there are more people not able to afford single lets.

Speaker (06:50.412)

trading down into HMOs, and when I say trading down, that’s not a negative trading down. Done properly, a great co-living space is actually often better than a bed-sit flat where they’re living on their own. Now, the data actually shows that 24 % of those HMOs above are company-owned. Now, I ask the question here, why are they company-owning them? Why?

Why are 76 % of landlords not got their properties in a company because it’s more tax efficient? So there’s a question there for you to take home and ask yourself why that’s happening. The regulatory landscape is changing. It’s changing massively. I was actually going to refer to a delightful Julie Ford here at the front. She did a brilliant talk last year on renters’ rights. And I was hoping she was going to do this and send you over to listen to her talk this year, but catch Julie directly.

The renters reform, it’s expected in quarter four of this year. Now, it’s going to abolish section 21. It’s causing a lot of uncertainty, turbulence in the market, and this is probably why we’re seeing 87,000 landlords exiting HMOs, because they’re fearful. When things are unknown, things are uncertain, people become fearful. The decent home standards kicking in. I’m already seeing this with my properties that I let to the council, where they’re pushing

and checking and compliance on all of the properties, which they’ve never done in the last, I think, 12 years. Now, we’ve always been compliant and we’ve always kept a high standard, but it’s going to force people out of the market. So that creates an opportunity for you guys to squeeze yourself in. We’ve also got certain areas, Camden, Manchester, Nottingham, think, Oxford, bringing in additional licensing.

that is expanding and it’s going to make landlords go, hmm, tough. Now, if people are getting out, that creates margin growth. And the thing I say is don’t buy averages. Build something better. So what are the best and the worst areas for HMOs? Well, Sheffield, Nottingham, Coventry, Manchester. I’ll share the actual numbers in a minute with you. They’re the best areas according to averages. Averages here.

Speaker (09:18.535)

I don’t buy average, and if you’re buying something and adding the value, I would hope that because you’re all very experienced HMO landlords, you will be outperforming that average by a country mile. Talking country mile, challenging areas, Oxford, rural areas, Brighton, even out of London. It’s not really country, but it’s sort linked in, I think. So averages here. We’ve got Liverpool, Sheffield, Nottingham.

Coventry and Leicester at the very end. Basically they’re running 8.5 % as an average yield. Everybody know how a yield is calculated? The annual rent divided by the property price and that gives you the yield. So if I take data, this is from SDL auctions, is HMOs sold, the best area in the country is 11.6. They are selling their HMOs

And that is the average of what they’ve sold. So some will be selling at 14%, 15%, and some may be down at 8%. But what we can see is the house price is only 156. The monthly rent per HMO is 1,518. So if you multiply that up by 12, divide by the house price, you’ve got 11.6. So it’s actually interesting when you actually see areas and how they’re performing against each other. And I was.

compare and contrast in Sunderland versus Kingston on Hull that’s got the closest, sorry, Stoke on Trent with the closest property price and it’s about 50 pound a month less in rent, Stoke versus Sunderland. And then if you looked at the same sort of rental figure, we’ve got Derby at the bottom but the property price is 225 instead of 156. So should that guide you? Go back to return on time and return on effort. If you’ve got to travel from here to Sunderland,

and I’ve got offices in Newcastle upon Tyne, I can tell you it’s a good four hour drive. That’s eight hours round trip. Are you getting the return to justify that? So again, some more yields of HMOs by city and a few more cities up there for you where you can actually see those graphed out. But I’d like to thank Coho at this point for providing their data and Lendlord as well.

Speaker (11:41.488)

into this article in the mortgage Gazette. Now what they’re actually saying here is the highest yields overall is in the northeast of England, which we’ve just evidenced from different sources of data. Because what I like to do is not read something like it’s the BBC and go, the BBC said, prove the source from multiple different sources. And therefore, what we’re seeing is this is how the UK divides up.

Interestingly, larger 5-6 bedroom HMOs secure a much better yield than smaller 3-4 bedroom HMOs. So there’s a little bit of a tip and I know that most of the people I’ve got in my circle all do the 5-6 as a sweet spot. And that is why, the numbers are bearing it out. I promised you I would share with you some trends here on the tenant demand. Now what we’re actually seeing here,

This is the demand side, and that is the purple line. What we can see, 100 to 120, over the course of July to July, one year, so that’s July 24 to right now, demand is growing for HMO rooms. The question I ask you is, are you providing or fulfilling that demand? The green dotted line is this index over here, tenancy length, and what we can see from July to July again,

That has gone up from 12 and a half months in a tenancy to 14.25. So that is evidence that trends are going and people are looking to stay longer in their properties. So what should your key takeaways be from what I’m sharing with you now? HMOs, the market is resilient. Clearly, you may get pockets of…

some towns that become saturated. But you have to look at the market as a whole and pick your area. Monitor the data and look at the area very, very carefully. Tenant demand, it’s evolving. People are looking for more co-living spaces than they are the cheap, dare I call it, the bed-sit type room. The 6.54 square meters and you’ve got nothing.

Speaker (14:05.726)

People want a better quality of life. And what we’re seeing, because people are coming out of single occupation into HMOs, they’re looking for that demand and they want to stay there longer. Regulation is tightening. Prepare yourself. Talk to people like Julie in the room. She will help you navigate this. And again, look for opportunities where you can adapt. And other people are stuck in their shoes and going, I’m not moving. I’m going to stay where I am.

If you’re flexible and adapt and change with the seasons of the market, because I describe property very much like seasons, and this month something will be in, next month it’s out, don’t stick doing the same thing. You will fail. But the most important takeaways for you today is opportunities. Everybody loves an opportunity. Urban centers, they are where growth is happening. You will outperform…

the stats and the data in urban areas. We’ve demonstrated that with the rural. All of the low-performing areas in the charts are rural areas. So avoid those, go for urban areas. Upgrade to high-spec co-living. That will get you a better return and a better yield and a better return on your time and your effort in what you’re doing. Target longer-term tenants. I’ve got

a client of mine that I support and advise. And her business targets people who are professional and they see this HMO room as their last HMO before they go and become a homeowner. So she has them grouped, she has some F1 houses, she has some police houses, some engineering. And what she makes sure is they all own a car.

Because if they own a car, they’re getting ready for the home ownership, they’re moving. Credit referencing is important to them. And because they’re targeting a home as their next move, she has zero rent arrears. In eight years of knowing her, she’s not had a single rent arrears because she’s carefully chosen her target market and her target area. That is a great bit of advice to take away and implement into your business. Stay compliant.

Speaker (16:31.058)

Prepare for the compliance. There’s enough news out there Factual news not scare news off the BBC or Guardian or wherever proper factual news about what is happening compliance ways and My personal favorite. It’s my strategy commercial to residential commercial to HMO It is the most profitable strategy if you think about the marketplace at the moment

We go through massive transitional changes every few decades. We’ve just experienced a massive trauma in the business marketplace. Work from home. That is a new strategy. Businesses are dumping offices. We have councils offloading. We have pension funds offloading. And they’re offloading at deep discounts. So you can get effectively double returns by

buying while the market is low and converting to the HMO and basically getting better returns from a commercial to residential HMO than you could ever get anywhere else. So it’s a great strategy I’d urge you to consider. Lovely, everybody. Thank you very much for your time today.