07-04-2025
As we move into April 2025, the landscape of Houses in Multiple Occupation (HMOs) and their associated mortgages in the UK continues to evolve. Over the past three months (January to March 2025), several trends, regulatory shifts, and economic factors have shaped the HMO market, influencing landlords, investors, and tenants alike. This article provides an in-depth look at the key developments in HMO property investment, mortgage trends, regulatory changes, the best places to invest, and some noteworthy HMO stories that have emerged during this period.
HMO Property Investment Trends: January – March 2025
The HMO sector remains a cornerstone of the UK’s private rental market, driven by high demand for affordable, flexible housing options, particularly among students, young professionals, and key workers. Over the last three months, several trends have stood out:
1. Rising Demand Amid Economic Pressures
The cost-of-living crisis continues to push more renters toward shared accommodation. With UK rents increasing by an average of 7.2% year-on-year (as reported by Zoopla in late 2024), HMOs have become an attractive option for tenants seeking to split costs. This sustained demand has kept HMO yields robust, averaging around 7.5% compared to 3.6% for single-let properties, according to the British Landlord Association.
2. Shift Toward Quality
A notable trend in early 2025 is the growing emphasis on high-quality HMOs. Tenants are increasingly demanding ensuite bathrooms, modern furnishings, and high-speed broadband, pushing landlords to invest in refurbishments. This shift has also been spurred by stricter regulations (more on this below), which are phasing out substandard properties and elevating overall standards.
3. Portfolio Diversification
Data from specialist lender Shawbrook indicates a rise in HMO investments, with HMOs making up 34% of their buy-to-let business in 2024, a figure that has likely held steady or increased into Q1 2025. Non-portfolio landlords (those with 1-3 properties) are increasingly entering the HMO market, with their share rising from 17% to 21% over the past year, reflecting a broader trend of diversification amid economic uncertainty.
4. Conversion Activity
With mortgage rates remaining elevated (though showing signs of stabilization), landlords are converting lower-yielding single-let properties into HMOs to boost rental income. This trend has been particularly pronounced in the North of England, where property prices remain more affordable.
HMO Mortgages
The mortgage landscape for HMOs has been dynamic over the past three months, influenced by broader economic conditions and lender adjustments.
1. Interest Rate Movements
As of March 2025, the Bank of England base rate has stabilized at around 4.5% following incremental cuts from its 2024 peak of 5.25%. While this has brought some relief to borrowers, HMO mortgage rates remain higher than standard buy-to-let rates due to their perceived risk. Typically, HMO mortgage rates range from 1% to 1.5% above standard buy-to-let products, with two-year fixed rates averaging 4.5%-5% and five-year fixes around 5.5%-6%, depending on loan-to-value (LTV) ratios and landlord experience.
Lender Adjustments: In January 2025, The Mortgage Works (TMW) introduced competitive two-year fixed HMO rates at 4.75% for properties with 5-7 bedrooms up to 75% LTV. Similarly, Lendco reduced its two-year HMO rates by 25 basis points and five-year rates by 15 basis points in February, signalling a push to attract HMO investors. Conversely, United Trust Bank (UTB) increased rates across its HMO range in late January, reflecting a cautious approach amid economic uncertainty.
2. Availability and Criteria
Mortgage availability for HMOs has continued to improve, with choice reaching a 13-year high in late 2024—a trend that has carried into 2025. Lenders like Landbay relaunched 80% LTV products for small HMOs in February, offering five-year fixed rates at 6.59% with no fees, catering to both experienced and first-time landlords. Kent Reliance also expanded its criteria in early 2025 to include 5–6-bedroom HMOs outside Article 4 areas, provided they have multiple bathrooms or kitchens.
3. Financing Challenges
Despite improved availability, HMO mortgages remain a niche product, often requiring higher deposits (20%-25%) and stricter underwriting due to tenant turnover risks and regulatory compliance. First-time landlords face additional hurdles, with some lenders requiring a minimum income (e.g., £30,000 annually) or prior property ownership.
Regulatory Changes Impacting HMOs
The regulatory environment for HMOs has seen significant updates in the first quarter of 2025, reflecting efforts to balance tenant safety with landlord viability.
1. Licensing Enforcement
Local authorities have ramped up enforcement of HMO licensing, with fines of up to £30,000 per offence under the Housing Act 2004 for non-compliance. In January 2025, several councils, particularly in the East Midlands and Northeast, tightened mandatory licensing requirements for smaller HMOs (3-6 tenants), aligning them with standards previously reserved for large HMOs (7+ tenants). Licensing costs remain variable, ranging from £600 to £1,000 for a five-year term.
2. Article 4 Directions
The use of Article 4 directions—requiring planning permission for converting properties into small HMOs—has expanded. In February 2025, cities like Leeds and Bristol introduced new Article 4 zones in areas with high HMO concentrations, aiming to control oversaturation and maintain housing balance. This has increased upfront costs and timelines for investors in these regions.
3. Safety and Standards
Following a government review in late 2024, new minimum standards for fire safety took effect in March 2025. These include mandatory interlinked smoke and heat detectors in all HMOs, plus fire doors in kitchens and on all floors for properties of three storeys or more. While costly (with conversion costs averaging £41,000 per property), these measures aim to enhance tenant safety and align with the trend toward higher-quality HMOs.
Best Places to Invest in HMOs in the UK (Q1 2025)
Location remains a critical factor in HMO profitability. Based on rental yields, demand, and property affordability, here are the top UK hotspots for HMO investment in early 2025:
- Manchester
Why: A thriving economy, five universities with over 90,000 students, and house prices 25% below the national average (£252,153 per Zoopla) make Manchester a perennial favourite. Yields often exceed 10% for well-managed HMOs.
Trend: Conversion of Victorian terraces into HMOs has surged in Q1 2025, particularly in areas like Fallowfield and Withington.
2. Liverpool
Why: Affordable terraced houses (£122,000 average) and strong demand from students and young professionals yield returns of 8%-12%. The city’s regeneration continues to boost rental growth.
Trend: High occupancy rates (95%+) reported in January 2025, per SpareRoom data.
3. Stoke-on-Trent
Why: Named a top city for employment growth in 2023, Stoke offers the UK’s most affordable properties (£158,517 average) and a student population of 25,000. Yields can hit 9%-11%.
Trend: Investors are targeting larger properties for conversion in Q1 2025, capitalizing on low entry costs.
4. Leeds
Why: With a growing student base and capital growth of 8.1% over five years, Leeds combines affordability (£200,000-£250,000 range) with strong tenant demand. Although, new Article 4 restrictions in February 2025 may slow conversions in central areas.
5. Barking and Dagenham (London)
Why: At £362,889, this Zone 4 borough offers London’s most affordable HMO opportunities, with excellent transport links and yields of 7%-9%.
Trend: Young professional demand spiked in March 2025, per local estate agent reports.
HMO News That Caught Our Eye This Quarter
The HMO sector has generated some compelling narratives over the past three months:
- The Manchester Refurb Boom (January 2025)
A group of investors in Greater Manchester made headlines by converting a derelict 8-bedroom Victorian property into a luxury HMO, complete with ensuite rooms and a communal cinema room. Purchased for £320,000 and refurbished for £60,000, the property now generates £4,000 monthly rent, achieving a 12% gross yield. The story, covered by Property Industry Eye, highlighted the potential for high-end HMOs to meet rising tenant expectations.
- Stoke’s Student Surge (February 2025)
ITV reported on a landlord in Stoke-on-Trent who transformed a £140,000 six-bedroom house into an HMO for Keele University students. With rooms rented at £450 each, the property’s 11.5% yield underscored Stoke’s affordability and demand, drawing attention from national investors.
- Regulatory Crackdown in Bristol (March 2025)
A Bristol landlord faced a £20,000 fine after failing to comply with new fire safety regulations introduced in March. The case, reported by The Independent, involved a five-bedroom HMO lacking adequate smoke detectors and fire doors. It served as a stark reminder of the tightening regulatory landscape and its financial implications.
The HMO Outlook for 2025
The first quarter of 2025 has reinforced HMOs as a resilient and profitable investment option, despite challenges like higher interest rates and stricter regulations. Demand remains strong, yields are attractive, and strategic locations like Manchester, Liverpool, and Stoke offer significant opportunities. However, investors must navigate rising costs, evolving mortgage products, and compliance burdens to succeed.
Looking ahead, anticipated interest rate cuts later in 2025 could further boost HMO activity, as predicted by Shawbrook and other analysts. For now, the key to success lies in targeting high-demand areas, investing in quality conversions, and staying abreast of regulatory changes. Whether you’re a seasoned landlord or a newcomer, the HMO market in 2025 promises both challenges and rewards for those willing to adapt.
To discuss HMO mortgages with an HMO mortgage broker please do get in touch. enquiry@foxdavidson.co.uk or contact the Bristol head office online or call 0117 989 7950.
