The Friends Effect

HMO friends effectThe Friends Effect

So no one told you life was gonna be this way, love life DOA and all that. The Friends effect is changing how young professionals live and changing the demand for buy to let.

Typically an HMO (House of multiple occupancy) was considered as lower quality accommodation or student lets, especially by lenders who preferred the simplicity of a property let on a single AST (assured shorthold tenancy). The theory was that you went from shared living to your own property. That is all changing due to the ‘friends effect’.

Partly driven by a change in the perception of property, cost of renting and a movement of millennial’s priorities, the ‘friends effect’ is fuelling a growth in demand for quality shared accommodation.

The HMO trend

The HMO sector in the UK is growing quickly and shows little signs of slowing. Landlords are keen to increase their return on property investments, tenants are looking to reduce their personal spend on rent, it appears to be a win-win.

Where it becomes a challenge for landlords is with the perception of HMOs and in how tenancy agreements are structured.

HMO Misconception

Historically, the HMO has always been seen as the lower quality property. There is some justification to this when you look at traditional Victorian properties where the living areas are converted to bedrooms and a typical 3 bed terraced property is suddenly a 6 bed HMO.

Partly for this reason, lenders have looked at HMO lending with a little reticence. Add into this that enforcing your security now requires evicting 5 or 6 separate individuals rather than letting a single tenancy expire.

The Friends Effect is changing things and whilst lenders are always slower to react there are some good options for landlords looking to take advantage of the change in living habits.

The important thing for landlords to communicate with the lender are;

  • Making it clear what the property is and who the tenant is, including the quality of those tenants
  • Having a decent, enforceable and legal tenancy agreement in place
  • Having an HMO licence in place, or where it wasn’t required before, having the application submitted to the local authority

For any queries with financing properties subject to the Friends Effect then get in touch, or should I say, I’ll be there for you..

By Dave Farmer

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