The top UK hotspots for HMO investments

HMOs have become popular for property investors looking to maximise rental yields and tap into the demand for affordable, shared accommodation among students and young professionals. Some cities in the UK stand out as prime spots for HMO investments due to their strong economies, large student populations, and ongoing urban development. Here, we explore the top UK hotspots for HMO investments.

What is an HMO?

An HMO, or House in Multiple Occupations, is a type of residential property in which three or more tenants, from different households, share basic amenities such as a kitchen, bathroom, or toilet. 

As mentioned above, this form of accommodation is particularly popular among students, young professionals, and others looking for affordable housing options. HMOs are subject to specific regulatory requirements to ensure safety standards are met, including adequate fire safety measures, sufficient cooking and washing facilities, and regular maintenance. 

Landlords of HMOs must often obtain a licence from their local council, which involves ensuring the property meets certain standards and conditions, offering a layer of protection to tenants and helping to maintain the quality of housing within the rental market.

Benefits of investing in an HMO

HMOs offer several benefits that make them an attractive option in the housing market, both for tenants and landlords. 

For tenants, HMOs provide an affordable housing solution, particularly in expensive urban areas, like cities, where renting an entire property might be beyond individual financial reach. Also, sharing spaces like kitchens and living rooms helps reduce living costs. 

For landlords, HMOs can yield higher rental incomes compared to renting out a property to a single tenant or family. This is because landlords have the ability to lease individual rooms to multiple tenants, potentially maximising the rental income and rental yield from the property. 

Also, the risk of income loss is spread across several tenants, meaning that if one tenant leaves, the overall financial impact is mitigated. HMOs also tend to have a steady demand in areas with high student populations or urban centres with a young professional workforce, ensuring a consistent tenant base.

Top UK hotspots for HMO investments

So, now that you know what an HMO is and the benefits that come with investing in one, let’s take a look at the top UK hotspots for an HMO investment. 

London

And we begin with the capital itself! London remains an impressive hub for HMO investments. The city’s diverse population, a significant number of universities, and status as an economic powerhouse attract a steady flow of tenants. 

Areas like Stratford, which have undergone extensive regeneration and offer proximity to universities and multiple transport links, represent particularly attractive investment opportunities. The rental yield in London sits at an average of 3.5%, but areas like Hackney and Greenwich have climbed up to as high as 4.5% which is considered a good rental yield percentage for the capital. 

Manchester

Manchester is renowned for its large student population, courtesy of its numerous higher education institutions, including the University of Manchester and Manchester Metropolitan University. This makes it an ideal location for HMO investments. 

Popular areas for HMOs include Fallowfield and Withington, which are both close to university campuses and full of local amenities. Manchester’s growing job market in technology and media, particularly at MediaCityUK, also supports a strong demand for flexible, affordable housing.

Manchester’s rental yield averages at 6.5% compared to the national average of 4.75%, which means that you will receive more value for your money by investing in an HMO in Manchester.

Birmingham

Birmingham, with its strategic central location and status as the UK’s “second city,” offers fruitful opportunities for HMO investors. The city is a significant educational centre, home to five universities, and has a high demand for student accommodation. 

Areas such as Selly Oak and Edgbaston are particularly popular due to their proximity to the University of Birmingham. Birmingham’s extensive regeneration plans and improvements in transport infrastructure, including the upcoming High-Speed Rail project (HS2), further enhance its attractiveness to potential tenants and investors alike.

You can expect a rental yield of 6.6% in Birmingham. 

Liverpool

Liverpool’s reputation for culture, music, and history makes it an appealing city for both younger tenants and investors. The city is home to several universities, including the University of Liverpool, which draws a large student population that requires accommodation. 

Liverpool offers some of the highest rental yields in the UK (sitting at an average of 7.92%), particularly in postcodes like L7 and L6, close to the city centre and university campuses. 

The relatively low property prices compared to other major cities also make it a lucrative market for HMO investments.

Leeds

Leeds is a key player in the UK’s property market, with a booming job sector in retail, manufacturing, and the digital industries. It has a substantial student population due to institutions like the University of Leeds and Leeds Beckett University. 

Areas such as Headingley and Hyde Park are hotspots for HMO investments, with high demand from students seeking housing close to university facilities. The city’s ongoing development and vibrant cultural scene continue to attract a diverse tenant base, making Leeds an attractive option for landlords looking to invest in HMOs.

Leeds has an average rental yield of 7.76%, making it the city with the second-highest rental yield after Liverpool. So, it’s safe to say that investing in an HMO in Leeds will be a profitable choice. 

Investing in HMOs in these UK hotspots offers the potential for high rental yields and a steady tenant base. Each city has its unique attributes that make it suitable for HMO investments. 

London offers unmatched economic opportunities and tenant diversity. Manchester and Leeds are thriving education and professional hubs with vibrant young populations. Birmingham’s central location and ongoing development projects make it a promising investment destination, while Liverpool offers cultural appeal and excellent returns on investment. 

For investors looking to dive into the HMO market, these cities are worth considering due to their proven demand and investment resilience.

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