HMO yield gap grows as standard rentals struggle

Shared housing delivers stronger returns while standard portfolios have less flexibility as they face increasing “cost and complexity challenges.”

Houses in multiple occupation are continuing to outperform the wider private rented sector, delivering average yields of 7.3% at a time when landlord margins are beginning to narrow, according to Pegasus Insight’s MD Mark Long (pictured).

The specialist market research firm’s Landlord Trends data reveals that average yields across the sector slipped to 6.4% in the final quarter of 2025, down from 6.6% in Q3.

While most landlords remain in profit, the proportion reporting their lettings as profitable fell to 85%, a four-point quarterly decline, with a growing minority now reporting losses as costs remain elevated.

Pegasus’ figures reveal an increasingly uneven market, with performance diverging between the portfolio types as landlords absorb higher operating and compliance costs.

Overall returns remain close to recent highs, but the margin for error is narrowing for a growing proportion of landlords.”

Long says: “The key takeaway from Q4 is not that profitability has weakened significantly, but that it is becoming more uneven. Overall returns remain close to recent highs, but the margin for error is narrowing for a growing proportion of landlords.”

He adds: “We’re seeing a clearer separation between business models. Higher-yielding, more intensively managed portfolios, particularly HMOs, continue to provide a degree of insulation, while more traditional portfolios have less flexibility as costs and complexity remain challenging.”

Long warns: “The risk to buy-to-let landlords is not a sudden deterioration in performance, but a more gradual erosion of resilience,” and he argues that long-term stability will increasingly depend on portfolio mix and financial strength.