HMO Market Predictions for 2025 - E - Energy I - Inflation E- Employment I - Interest Rates and R - Regulation
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Daniel Hill’s 2025 predictions podcast
https://podcasts.apple.com/gb/podcast/270-2025-property-market-predictions/id1498618503?i=1000682987558
Adam Lawrence - Partners in Property February Supplement - https://partners-property.com/supplement-2-feb-25-the-new-dawn/
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Hello and welcome to the first episode of the HMO success podcast for 2025. I've had a little bit of a break over Christmas and New Year and decided that it was time for me to take a few weeks off recording a podcast. I wanted to review things that were filtering through the pipeline, like the renter's rights bill. I also wanted to take stock of other people's views and opinions about the outlook for 2025 and consider what some of those impacts are going to be for this year. So while many people might have released their predictions and property thoughts for 2025 on the 1st of January, I'm a month late. I hope that you will find that this podcast will give you some thoughtful reflection on what has been an interesting January.
First of all, I'd like to say a massive thank you to those of you who listen to this podcast and write to me when I haven't done an episode and say "Wendy, when's the next episode coming out?" Thank you ever so much. You keep me accountable, keep me on my toes. And I hope that this podcast helps you as you invest in HMOs. I'd also like to thank everybody who participates in the community and who's investing in HMOs and gives me lots of food for thought, content, ideas, and subjects to tackle.
I'm looking forward to 2025. I think it's going to be a very interesting year. What I mean by that is it's going to be one where we're going to have to use our intelligence to navigate the market. Today's podcast is very much about using our intelligence, crunching some of the numbers and thinking more deeply about some of the statistics you might have already heard since the first of January.
There are a couple of people I want to give a quick shout out to who produce excellent material and whose views and opinions I value highly. One of them is Daniel Hill. He has the entrepreneurs podcast. He is very much about looking at business and growing your property portfolio as a business. I listen to a podcast of his a while ago and I thought it was excellent and I would agree with a lot of his conclusions. I'll put the link in the notes so you can jump over and listen to his podcast if you wish to.
The other person I'd like to mention is Adam Lawrence from Partners in Property. His property predictions or update on the market - he does a monthly newsletter for Partners in Property. That was released today and I've been mulling over some of those statistics that he's released. Again, I'll put the link in the show notes so you can go over to that and read his notes on the general wider housing market.
Today, I want to focus on my chosen topic, which is HMOs and predictions for 2025. I'm really delighted that today you have the honor of listening, not just to me, but also to my husband, my partner in crime, Andy Large.
The reason I've invited him on is because Andy's got a really deep knowledge and interest in macroeconomics. At home we have plenty of discussions about this topic. As we're running an HMO business and a property business, we're always very interested in looking at how these links work back and forth because housing is a massive part of our national economy. It's a huge part of our international economy and understanding the macro picture is very important when you're trying to make decisions about the micro picture, which is how you use your money to invest and make it grow, and hopefully also provide good quality accommodation for individuals.
Discussion Topics: EIER Framework
Energy
Wendy: Let's start with energy. What are your thoughts about what's happening in the energy world and market? And how's that going to affect us in HMOs?
Andy: It could affect folk differently because we have to recognize that there are different models for HMOs. Not every HMO is an energy inclusive model. Some have tenants that actually pay their own bills with individual room billing, particularly for electric sometimes for gas, mostly for electric. I think most professional HMOs at least are an all-inclusive model. Would you say that's right?
Wendy: Definitely. I think that particularly for the professional market, which is where we specialize, we offer that all-inclusive rent because I think it's really valuable for the tenant. There are so many benefits to it for the tenant. It's much easier for them just to move in and have one all-inclusive fee that they pay. It's rent, utilities, council tax, water, etc. It all goes into one part and makes it much easier for them to move in and move out and be more flexible.
As well as the actual energy costs of running an HMO, the other things on the horizon which I think are part of this wider industry that affect HMOs are regulation when it comes to energy - the EPC regulation, but also the wider costs of energy and the costs of moving to net zero. This is becoming much more prevalent. We are no longer just simply accepting that we should be moving to net zero as a fait accompli, but there are voices which are now counterindicating that.
As we've heard from President Trump across the pond, he stated that he is not going to support net zero and he's withdrawn the United States from the Paris climate accord and he's going to "drill baby drill." What does this wider energy industry direction of travel mean for us in HMOs?
Andy: My view on net zero is that it's a totally suicidal mission. Even if we achieve net zero, what would it do? When asked that question, the reply is "Well, we'll be showing the world how to do net zero." And my view is they'll be laughing at us, particularly in China as they've made billions probably trillions out of manufacturing solar panels and we'll have no energy independence.
The pertinent point for HMOs and rental properties is the EPC piece. That's where the rubber hits the road. My personal view is that this is going to be very hard now for Labor to inflict on the population of the UK. The idea was that by 2030, every rental property needs to achieve EPC C, which is unachievable anyway. There are millions of properties, at least hundreds of thousands that would never be able to meet that energy requirement because of the method of construction, their proximity to other properties, etc.
I think it's an even bigger political problem for Labor now because of the appalling performance in the opinion polls and the rise of Reform who are strongly opposed to net zero. Even if Labor were to introduce a bill or ministerial instrument that said you've got to achieve that target by 2030, that requires consensus across the House of Commons, because there will be another election before 2030.
They are doing a consultation about it at the moment as a live consultation. That's often what you do about what you're about to go wobbly on ideas. There's no certainty. There might very well be a law that comes in that says you have to do EPC C, and then a landlord is going to have to make a decision - are they going to do it?
This is one of the dangers of any of these types of legislation. It's like the car industry having to prepare for getting rid of all ICE vehicles, only to be told, "Oh, actually, you can make some ICE vehicles." It's like a big liner crossing the ocean - it's not very easy to change direction of travel halfway through a strategic plan.
Inflation
Wendy: Linked to energy, of course, is inflation, and this is clearly a topic which is very important when you're investing in property, partly because we talk about real assets hedging against inflation, hedging against effectively the decrease in the value of your pound. What is going on with inflation right now? The headline statistics are that as of the end of 2024, it was 2.5% annualized, which doesn't sound too bad. But what do you feel is going on with inflation?
Andy: You mean CPI inflation, which if you listen to the government inflation figure, that's really like asking a child to mark their own homework. I don't really believe that number. I think it is quite a bit higher than that because it doesn't include housing costs, which is a massive part of most people's monthly budget.
Even then, there are things in the mix that make your head spin. I was listening to shows about housing costs priced in gold, which is the only Tier one reserve asset that has no counterpart. And priced against gold, all these things have indeed been in deflation. Housing prices are in a deflationary cycle right now.
This is one of the problems with the fiat currency we have. It is very hard to make really solid predictions when fiat is such a fungible thing. But I think CPI is about to possibly go negative. I think rent levels are probably going to ease off for a variety of reasons, mostly to do with employment and the recession.
Wendy: I'd like to challenge you on that one. Inflation is a compounding problem. We're talking about two percent or two and half percent in 2024 on top of four and a half percent in 2023 on top of seven percent in 2022. It doesn't include house prices, which is why when you're doing a refurb these days, you can add another 30% on the cost on what you were doing three or four years ago because it's all that compounded inflationary effect on goods services, materials, etc.
I would argue that there is a possibility that although CPI inflation remains relatively low and the Bank of England have got a target to keep it at two percent, the wider inflationary picture - I believe there is a possibility that we're going to actually see effects of inflation coming through much more strongly and that could affect interest rates. Many people are suggesting the interest rates are going to start to come down this year. It would be great if they did, but I wonder actually whether interest rates could actually go up.
Employment
Wendy: What's going on with employment and unemployment?
Andy: I think it's quite simple. Rachel Reeves has created rather a hostile environment for employing lots of people and we're going to wait and see how heavily that weighs on our economy. The chances are it could be quite bad.
Wendy: I personally feel having spoken to a lot of people in the last couple of weeks about rooms and whether they're renting out and how long they're taking to rent out, there is a little bit of flat lining. The pace of filling rooms is not what it was a couple of months ago, although sometimes that is the time of the year. We have a slow month sometimes. People are still getting over Christmas. They're paying off their credit card bill. They haven't got any money to move.
The 23rd of January is apparently the day when most people apply for new jobs. It's a commonly known date. So I think by the time we get to February March time, things will pick up again. People are more available for viewing and you've got more hours of daylight to do the viewings.
Regulation
One of the areas of HMO that we've seen grow a lot over the last few years is social care, social housing HMO. Whether it's an HMO that you set up and you lease to a care provider or maybe a charity, those people may be vulnerable. They may be long-term unemployed. There may be other reasons why they're being housed by the third party provider.
What's very interesting to me, linked to social housing and the growth of social housing is debt at local government level. As of 2023, local government debt nationally was about nine billion pounds. This means that's about one thousand four hundred pounds per person in every local government area has debt to that level. That's the equivalent of many people's annual council tax bill.
The big regulation coming forth this year is called the RRB - the Renter's Rights Bill. That is rapidly making its way through the Houses of Parliament. It's being read currently in the Lords and we're awaiting some amendments. The HMO action group wrote to about 25 members of the House of Lords to try and influence them in their thinking about particular amendments to that bill.
Students are very badly treated by the Renters Rights Bill and I feel sympathetic towards those landlords that have offered really good quality student lettings for a number of years and now suddenly find that they cannot offer that fixed term tenancy of nine months or 12 months at the beginning. I think there's going to be ways around it. We don't do student HMO, so I'm not an expert in this field, but I know other people who are doing student HMOs and they've thought about it. I think again there's going to be creative solutions around it.
On that note, I'm going to call our discussion to an end. We've covered some of our thoughts and predictions about 2025. Some of these are certainties, some of these are possibilities, but whatever happens, we want to wish you a prosperous and happy 2025. Please note that none of this is intended as financial advice. It's simply our musings on what's going on in the wider world of macroeconomics and housing statistics. Keep providing good quality HMOs for your tenants because long-term people need somewhere to live. Everyone needs a home. Look forward to speaking to you soon.
