UK Refugee Hotels to Close: is the HMO Investment Boom Coming to an End?
- TBA
- Nov 7
- 4 min read
According to data from the Home Office, tens of thousands of asylum seekers were still living in hotels as of June 2025. At the same time, the government has pledged to stop using hotels for asylum accommodation by 2029 and to shift its focus to other types of housing, including former military sites and privately contracted properties.
However, the number of available beds and support services remains far from sufficient to meet the influx. This will push pressure onto local communities and the private rental sector, increasing the likelihood that asylum seekers will be dispersed into houses in multiple occupation (HMOs).
Under these competing pressures, a housing model already fraught with problems may face even greater disruption.
1. The growing complexity of HMO housing
A house in multiple occupation (HMO) refers to a property shared by at least three tenants from two or more households, who share facilities such as a kitchen or bathroom. If the property houses five or more tenants, it is often classified as a large HMO, subject to stricter licensing requirements. Students and low-income professionals are the main tenant groups in this type of housing.
However, as more mixed households move into the same property, the complexity of HMO living is increasing and even reshaping local communities.
Jenny (pseudonym), who has lived in Perivale, West London for twenty years, said her area was once known for its family-friendly environment, small gardens and safe streets. But, since a neighbouring house was purchased by an investment company and converted into an HMO in 2021, the neighbourhood has changed dramatically: night-time noise, a constant flow of new occupants, unpleasant odours and even registered sex offenders living near schools have all become concerns. Jenny and other residents emphasised that many tenants have not received adequate support or supervision, turning HMOs from temporary accommodation into commercialised housing for profit.
2. HMOs as potential accommodation sites
With the Home Office reaffirming its commitment to end hotel use for asylum seekers by 2029, government contractors are actively seeking partnerships with landlords, offering guaranteed rent, long-term leases and full property management services.
For investors, using HMOs as temporary asylum accommodation has therefore become highly financially attractive. Government contractors such as Clearsprings Ready Homes are currently looking for landlords willing to house asylum seekers, providing guaranteed rental income, long-term contracts and management services.
Analysts note that the government’s five-year fixed contracts are particularly appealing to investors, but they may also raise community concerns. Hotels offer centralised security and management, whereas dispersed accommodation means asylum seekers could be housed near schools, care homes or in quiet residential areas. HMOs, by their nature, offer little control over the mix of tenants.
3. HMO investment returns remain higher than traditional rentals
Despite the social instability concerns, HMO properties continue to offer landlords more stable and higher returns.
Surveys show that HMO investments still outperform traditional rental yields. With the cost of living and mortgage rates continuing to rise, the UK’s HMO market is expected to show strong growth in 2025.
Official data indicates that UK rental prices rose by 9% over the past year, marking the largest increase in nearly a decade. As rents soar, more tenants are turning to shared housing as a cost-effective way to live in cities. Industry experts highlight that this trend is especially pronounced in London and is now spreading to other major cities.
Research by Aldermore Bank found that 30% of HMO landlords earn annual gross rental income between £100,000 and £199,999, compared to only 10% of non-HMO landlords.
The reason is simple: renting out rooms individually often generates higher total income than letting a property as a single unit.
For landlords, HMOs offer stable income, and if tenants come from vulnerable groups, rent is often paid directly through housing benefits.
However, for local communities, this can lead to more unregulated mixed-use housing and potential risks near schools or care homes. Experts warn that without corresponding support and enforcement resources, the situation will only worsen.
For existing tenants, if landlords convert their properties into HMOs under government contracts for higher returns, this could squeeze the private rental market, push up local rents and force tenants to move.
The view from TB Accountants
‘The government wants to save money, landlords want to make money, and communities want stability’.
This statement perfectly captures the dilemma of the HMO housing model.
To strike a balance, HMO landlords are now facing increasing regulatory scrutiny. Under the Housing Act 2004, HMO properties must hold a valid operating licence, and many local councils have recently expanded their licensing requirements.
The following tax changes are worth noting:
Stamp duty changes
Multiple Dwellings Relief (MDR) was abolished in June 2024. This means purchases involving multiple properties, including HMO portfolios, can no longer calculate stamp duty based on an averaged price per dwelling, significantly raising investment costs.
Tighter short-term letting tax rules
Tax benefits for Furnished Holiday Lets (FHLs) will largely be removed from April 2025. Income tax and capital gains advantages will gradually align with those of standard rental properties.
Council tax and business rates
If an HMO is deemed to be ‘commercially operated’ or includes short-term letting, it may be liable for business rates rather than council tax, increasing running costs.
Additionally, the Renters Reform Bill is expected to take effect by the end of the year, imposing stricter rules on landlords, including minimum room sizes, energy efficiency standards and tenant protections.
As policies and market dynamics continue to evolve, those intending to become HMO landlords are advised to prepare in advance, ensuring compliance and undertaking necessary refurbishments to mitigate potential legal risks.
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