HMOs continue to deliver the strongest returns in the private rented sector even as average landlord yields eased back from recent highs at the end of last year, new research shows.
The latest Landlord Trends Q4 2025 report from Pegasus Insight found that 85% of landlords remained profitable, a slight fall from the previous quarter.
Average achieved rental yields slipped to 6.4% in the final three months of the year, down from 6.6% in the third quarter, when decade highs were recorded.
The proportion of landlords reporting a financial loss edged up by two percentage points in the quarter, highlighting early signs of pressure as costs remain elevated across the sector.
HMOs OUTPERFORMING
Performance is increasingly diverging by portfolio type. Landlords operating houses in multiple occupation continue to outperform the wider market, achieving average yields of 7.3%.
These higher returns have helped to offset greater management demands and running costs, while landlords with more traditional portfolios appear more exposed as margins tighten.
PROFITABILITY BECOMING MORE UNEVEN
Mark Long (main picture, inset), Managing Director and Founder of Pegasus Insight, 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.
“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.”
EROSION OF RESILIENCE
He adds: “The risk to buy-to-let landlords is not a sudden deterioration in performance, but a more gradual erosion of resilience.
“In an environment where yields are no longer rising, the ability to absorb further regulatory, operational or economic pressures will increasingly depend on the strength of landlords’ financial structures and the scale and mix of their property portfolios.”
