Houses in Multiple Occupation (HMOs) in Wales are generating the most substantial yields across Britain, according to data revealed by Paragon Bank.

The buy-to-let specialist bank’s data, sourced from applications, indicates that Welsh HMOs yield an average of 9.01%. This return is generated from an average rental income of £29,100 against an average valuation of £322,000.

Close behind Wales, Yorkshire & Humber ranks second on the list with HMO landlords generating a yield of 8.61%. The North West takes third place, with a yield of 8.33%. Furthermore, HMOs in five regions across Britain yield returns greater than 8%.

Conversely, London HMOs occupy the bottom rung of the regional yield table, providing a yield of only 6.13% from a rental income of £52,900 on an average property value of £863,000.

HMOs generally yield higher returns than other property types because they are let on a per-room basis. However, they typically incur higher operating costs due to increased maintenance. A property is classified as an HMO if it houses at least three tenants, forming more than one household, and sharing toilet, bathroom or kitchen facilities. A large HMO is one that accommodates five or more residents with shared amenities.

Louisa Sedgwick, Paragon Bank’s Commercial Director for Mortgages, commented, “Demand for HMOs has grown in recent years as the quality of accommodation has risen, with features such as ensuites becoming commonplace. HMOs are advancing up the quality scale as tenants demand more space, superior services and access to private facilities.”

Sedgwick added that although yields—measured as the ratio of rental income to property price—are robust for the market, the actual landlord return, that is rental income versus mortgage payments, is even stronger for this type of property. Yet, she cautioned that HMOs are typically more labour intensive than a standard buy-to-let property.

She further noted, “The key to a successful HMO proposition lies in the experience of the landlord, the location, and understanding the target tenant market. As specialists in lending to HMO landlords, particularly on large HMOs of up to 20 sharers, we can offer unique insights into how this segment of the market is performing.”