Soaring energy prices will force more tenants to consider living in HMOs, says a lettings business.
When a recent increase in utility bills was announced in April the Platinum Property Partners network claims to have received over 30 applications for every room to rent within the first 24 hours.
It is expecting a similar response to the weekend’s announcement by regulator Ofgem that the price cap would rise to an average £3,549 per household per year from October.
PPP claims that compared to renting a one-bedroom flat plus bills, renting an all-inclusive room in a professional HMO remains more than 40 per cent cheaper and ensures transparency with just one bill.
Managing director Emma Hayes says: “As they struggle to pay current market rents and rising bills, HMO accommodation provides a level of certainty with one monthly payment inclusive of bills, which is more than 40% cheaper than renting alone.
“But even HMO rents are not immune to the soaring cost of living and running a business and even housemates will see a rise in rents eventually. The actual cost of running a professional HMO property has increased 50 per cent almost overnight and irrespective of higher mortgage rates, we’ve calculated that our landlords would need to increase rents by £100 per room per property just to cover this increase in energy costs, which they pay for.
“Despite HMO investment generating up to four times as much rental income as single-occupancy buy-to-let, there is not an endless pot of reserves.
“Professional landlords like ours often rely on the rental income as their main source of income, running the portfolios as full-time, professional businesses, and already swallowed the increase in running costs with the work from home ruling during the pandemic and from energy price hike in April.”
Hayes continues: “It’s a vicious circle for both tenants and landlords. Those who have been in existing rented accommodation for a while, paying well below market rates, will either see a significant rise in rents or be forced to move into more affordable accommodation. If they don’t want to compromise on quality, then their only option might be professional and well-maintained properties like those our landlords provide.
“The government must do more to not only prevent hundreds of thousands of renters being pushed into fuel poverty, but also support reputable landlords and investment in the Private Rented Sector when there is serious shortage of affordable properties to rent and buy. Tenants should not be in a position where they are forced to move and landlords should be supported, as any other business owner would, to maintain a viable investment while providing an affordable service. By encouraging and helping good landlords, the government is helping tenants too.”
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Rabbit Hutches eco style with a delightful diet of pureed ants / cockroaches etc etc
Can't wait
Funny I have not found any greater demand for my HMOs. I am based in the West Midlands. Yes logic would say that with the rising cost of energy the all-inclusive HMO model would be better but most HMO landlords are installing or have installed prepaid meters so the cost of electricity is down to the tenant. Maybe the Southeast is different.
George most of my tenants do not cook as I pointed out to the housing standards officer who insisted on having cooking facilities installed in my HMOs. The latest absurdity is that I fit microwave ovens with grills in place of microwave only ovens. These microwave ovens with grills cost over twice the cost of a microwave only oven. When I pointed out that a lot of tenants didn’t know how to use a microwave never mind a microwave oven with grill and they were rarely used anyway the officer didn’t care. When asked who will replace them when they end up in Cash Converters I was told with a sweet smile I would have to! I am not sure what my tenants eat but I doubt very much they eat pureed ants cockroaches etc. Another myth
Jim Haliburton
The HMO daddy
This massive hike in costs may cause mayhem in the HMO market as landlords are only allowed to increase rents once per year -perhaps there are other ways to help increase the revenue stream?.Also the lower paid tenants may not have enough income to be able to pay increases in rents.HMOs will provide a great way for tenants to mange their finances in the same way as fixed rate mortgages allow landlords to have stability and some control over their borrowing costs.
A difficult time for all is ahead !
Southeast is certainly different HMO License costs £500. more, please correct me if I am wrong. Property is far more expensive like £500k for a 2 bed Flat, that’s £30k Stamp Duty tax up front, so the returns on Rental income is far less £ for £ invested in the Southeast.
I agree Michael, and there is also a glass floor on rents where ever you are in the country, making the return away from the south east in concentric cirles more attractive. ie: The average rent is about £1000 outside London, but the higher rents in the south east are far lower by proportion than the greater costs of acquisition. I know a few London based investors who have been snapping up houses in the North East for example, 3 bed house can be bought for £60/70k and the rents mean you get a 12-15% return.
I did some number crunching over the weekend and spoke to several tenants.
I looked at utility usage for a 12 month period from August 2020 to August 2021 and compared it to the 12 months from August 2021 to yesterday.
This time last year I had contracts with numerous companies who want bust last Autumn so a lot of my rents were based on those prices. I have so far absorbed the utility price rises for existing tenancies and let newly vacating rooms at whatever current market price has been. After Fridays price rise announcement there is no choice. Existing long-term tenants are going to have to pay more.
At August 2021 prices the combined utility bill cost across 8 houses housing 35 students and young professionals was about £7168 plus Standing Charges.
At October 2022 prices for the same usage it would be £32760 plus SC.
Most of my tenants have tried energy saving measures over the last few months so the annual usage has dropped in most houses and I've replaced a couple of tumble driers with heat pump ones, put solar water diverters in a couple of houses, etc. I'm not including electric in 2 student houses for the upcoming year. Even at the more recent lower usage levels and less houses for electric I'm still looking at an annual bill of £25938 plus SC at October prices with another increase predicted in January. The £400 per house from the government will lower it by £2400 but it's still a £16470 increase. Only 14 tenants have been in situ long enough for a rent increase. The others are already paying rents based on the changing situation over the last year.
Having discussed the situation with 5 tenants last night it was something they were all expecting and for some it was a relief that I wasn't looking for the extra £100 a month the media keep mentioning.
For tenants who have been with me for between 12 months and 2 years I'm aiming for a £25 a month increase (about 5%). For ones who have been with me longer inflation calculators indicate £75 would be about right. One tenant thought she would be OK with £70 a month increase (after nearly 5 years of no increases) but said her housemate hadn't had the same level of pay rises so perhaps I could be a bit more gentle on that one. Another one wants to pay more than I was suggesting.
It's a question of trying to close the gap a bit while still encouraging them to cut usage. My biggest HMO really engaged with energy saving over the last year and cut its gas consumption by nearly 5000 kWhs and electric by 1370 kWhs. At October 2022 prices that would make the annual bill £5680 instead of £7133. 12 months ago the annual bill would have been £1568.
The numbers are bonkers. What I dont understand is why the energy companies are being allowed almost Monty Python esq to blatantly lie about profiteering from the situation. They flatly deny they are one by one, yet EON as an example who made £4bn last year, have already made £3.4 bn up to June and is set to make £9bn by year end. Where did that £5bn magically come from?? Why not simply tax all excess profits vs 2021 at 80% for being blaggers and pass back to consumers?
The key bit I’m picking up on here is engagement with your tenants. If you read the press you would be led to believe we are all con artists looking to screw every penny out of our customers with no consideration to building long term relationships and quality business. If only all the commentators would take the time to look and see what really goes on behind the scenes!
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