The Intermediary – February 2026 - Flipbook - Page 56
BUY-TO-LET
Opinion
The evolution of
the HMO market
A
s the rental market
continues to evolve,
houses of multiple
occupancy (HMOs)
are undergoing
a quiet but
significant transformation. Once
viewed as a niche or transitional
asset class, HMOs are now firmly
embedded in the strategies of
professional landlords.
Over the past decade, the evolution
of the HMO sector has been gradual
but deliberate. Changes to buy-to-let
(BTL) mortgage tax relief in 2020
were a clear catalyst, prompting
many landlords to reassess how they
generate income from property. For
a growing number, HMOs offered
a way to offset higher costs through
stronger yields. Since then, wider
market forces including rising rents,
changing tenant behaviour and
increased regulation have accelerated
the professionalisation of the sector.
The pandemic initially introduced
uncertainty, but demand rebounded
strongly in its aermath. As
people returned to offices, demand
grew for affordable and flexible
accommodation in commutable
locations. HMOs naturally meet this
need, offering lower individual rents
and shorter commitments that appeal
to a more mobile workforce.
Crucially, today’s HMO tenants
are not the same as those of the past.
While students remain part of the
picture, the tenant base increasingly
includes young professionals and
shi workers, particularly NHS staff.
Expectations have risen sharply.
Tenants are no longer willing to
compromise on quality and are
seeking larger rooms, ensuite
bathrooms and reliable ultra-fast
broadband. It is no longer just
about providing facilities, but about
delivering them to a high standard.
This shi in expectations has driven
the rebranding of many schemes
towards co-living. Higher-end HMOs
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The Intermediary | February 2026
and new-build developments are
increasingly positioned this way,
but improvements are being made
across the wider HMO market as
landlords invest more capital to aract
professional tenants.
New sector strategies
Professionalisation is now one of the
defining characteristics of the sector.
Far fewer landlords operate a single
HMO as a standalone asset. Most
are running portfolios and treating
their investments as businesses. That
brings higher standards, but also
higher costs, from refurbishment
and ongoing management to
compliance. Licensing, in particular,
can be complex, with requirements
varying significantly between
local authorities.
This complexity does raise the
bar, but it does not close the door.
HMOs can still deliver strong returns,
even for newer entrants, provided
the right structures are in place.
Experienced managing agents can
play a vital role in reducing day-today operational risk. From a lending
perspective, stronger rental coverage
is oen required where borrowers
are new to the sector. This helps
ensure the property can comfortably
service the debt while experience
is built. As portfolios grow and
track records are established, those
requirements can ease.
For brokers, this presents a real
opportunity to add value. As more
landlords enter or evolve within the
HMO market, understanding which
lenders’ criteria align with a client’s
objectives is essential. Some lenders
are beer suited to first-time HMO
investors, while others are more
appropriate for experienced operators.
Brokers who recognise these
distinctions are beer placed to secure
funding that genuinely supports their
clients’ strategies.
At Redwood Bank, we oen talk
about being ‘Experts for Experts’.
TOM WORBEY
is senior product manager
(lending) at Redwood Bank
HMOs and complex BTL lending
demand specialist understanding on
both sides. We take time to understand
each case, the asset and the borrower’s
experience. That approach allows
us to support professional landlords
operating in an evolving market;
while giving brokers confidence.
Looking ahead, brokers should be
engaging clients early to gain a clear
understanding of their goals, rental
income and managing costs. Using
tools such as commercial mortgage
calculators and detailed product
guides, and being willing to explore
more specialist opportunities, can
significantly improve outcomes.
Making the maths work is
fundamental to achieving a higher
likelihood of acceptance.
The HMO market has moved well
beyond its traditional image. It is now
a professional, highly specialised
segment of the BTL market.
While London remains popular,
growth is accelerating in cities such
as Leeds and Manchester, as well as
commuter locations like Cambridge.
Affordability pressures continue to
shape rental demand, with HMOs
increasingly meeting the needs of
younger working professionals, not
just students or shi workers.
Graduates moving into cities are
seeking well-located, high-quality
shared accommodation with strong
amenities and access to social and
professional hubs. This shi is
influencing how investors approach
HMO assets, placing greater emphasis
on quality, longevity and compliance.
In this environment, partnering with
a specialist lender that understands
the nuances of complex BTL and HMO
lending is essential to supporting
sustainable growth. ●
