This commentary provides an overview of the Houses in Multiple Occupation (HMO) market in the UK as at January 2026.
Market Overview
The UK Houses in Multiple Occupation (HMO) sector remains an established and active component of the residential investment market. Demand for shared accommodation continues to be underpinned by affordability pressures, urban population growth, and sustained demand from students, young professionals, and transient workers. Well-located and compliant HMOs continue to attract investor interest.
Investment Market and Indicative Yields
| Asset Type | Typical Location | Indicative Net Initial Yield |
| Small HMOs (3–5 rooms) | Regional towns / suburban locations | 6.5% – 7.5% |
| Medium HMOs (6–10 rooms) | University towns / city suburbs | 7.5% – 8.5% |
| Large HMOs (10+ rooms) | City centres / high-demand areas | 8.0% – 9.5% |
| Purpose-built HMOs | Prime student or urban markets | 5.75% – 6.75% |
HMO values are commonly assessed using an investment approach, often supported by a profits-based analysis, reflecting the operational nature of the asset and reliance on income
performance. Yield selection is influenced by location, scale, compliance, and management quality.
Occupational Demand and Rental Growth
Occupational demand remains strong, particularly in university towns, employment centres, and areas with constrained affordability. Rental growth has generally been moderate, with income resilience supported by diversified occupancy and shorter letting cycles.
Operating Costs and Management
HMOs incur higher operating and management costs than single-let residential properties. These include management fees, utilities, council tax, maintenance, compliance costs, and void allowances. Valuations should be based on realistic and sustainable net income assumptions.
Statutory and Regulatory Considerations
The HMO sector is subject to a complex statutory and regulatory framework. Mandatory licensing applies to properties occupied by five or more persons forming two or more households. Additional licensing schemes and planning controls, including Article 4 Directions, may apply locally.
Compliance with minimum standards, fire safety requirements, and management regulations is critical to value.
Local authorities have extensive enforcement powers, including civil penalties, rent repayment orders, and licence revocation. Regulatory risk is reflected in yield selection, income sustainability, and capital expenditure allowances.
Valuation Considerations
When valuing HMO assets, regard is typically had to licensing and planning compliance, sustainability of income, management intensity, fire safety provisions, building condition, and alternative use potential. Yields are commonly higher than standard buy-to-let residential property to reflect operational and regulatory risk.
Outlook
The medium-term outlook for the HMO sector is considered stable but selective. Well-managed and compliant HMOs in strong locations are expected to remain attractive to investors, while secondary or non-compliant stock may face increased pricing pressure.
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