Landlords plan to shun terraced house in 2020 in favour of properties that offer a higher yield, according to latest research.

Houses in multiple occupation (HMO) are their preferred target this year. A third of landlords looking to purchase will go after shared housing opportunities.

The data, from the final quarter of 2019, is a rise from 12 per cent for the previous three months. This puts it at the highest level since the second quarter of 2017, according to the analysis by Paragon Bank.

A quarter of landlords said they plan to acquire flats, with 18 per cent targeting terraced housing.

HMOs are typically purchased by portfolio landlords as they offer a higher yield but are more complex to manage. 

Paragon research shows HMOs achieve a yield of 6.5 per cent, compared to an average yield across all property types of 5.6 per cent.

Almost one in 10 portfolio landlords – those with four or more properties – to the bank they plan to add to their portfolio over the next quarter.  

Among those with fewer properties that fell to just 1 per cent.

 Richard Rowntree, director of mortgages at Paragon, says: “The private rented sector needs to grow to meet increasing levels of tenant demand and it’s clear that portfolio landlords will drive that growth. 

“Not only are they looking to build their portfolios, they are also looking at more complex types of property that will deliver higher yields, such as HMOs.”

Overall, landlord confidence remained weak, although there was a slight uptick in landlords’ confidence compared to Q3 2019. 

Paragon’s Confidence Index – which is produced by landlords ranking confidence out of 10 – recorded a score of 6.2 during the period, the highest level for a year and up from 5.8 on the previous quarter.