Rental yields across the UK’s private rented sector have stabilised following a period of softening, although rising operational costs and continued regulatory change are still weighing on landlord confidence.
New research from Pegasus Insight shows average gross rental yields increased slightly to 6.5% in Q1 2026, up from 6.4% in the previous quarter.
While overall profitability remains resilient, the data highlights a market increasingly split between larger, more professionalised landlords and smaller operators facing tighter margins.
According to the latest Landlord Trends research, 84% of landlords still describe their lettings activity as profitable, although this represents a second consecutive quarterly decline. At the same time, the proportion of landlords reporting losses fell slightly from 6% to 4%.
COMPLIANCE OBLIGATIONS
HMOs continue to outperform the wider market, delivering average yields of 7.6%, while the North West remains the strongest performing region at 7.1%. London landlords continue to record the lowest returns at 5.3%, reflecting high acquisition costs across the capital.
The findings come as the sector adjusts to the implementation of the Renters’ Rights Act and growing compliance obligations, with many landlords continuing to reassess portfolio strategy and long-term investment plans.
Despite this, tenant demand remains supportive. Some 58% of landlords described current demand as strong, although this has eased compared to last year as the market begins to rebalance.
Separate tenant research from Pegasus Insight, based on interviews with 3,000 renters, suggests occupancy remains stable, with the average tenant now staying in their property for 5.3 years. Two-thirds said they intended to remain beyond their current tenancy agreement.
COST PRESSURES
Mark Long (main picture, inset), Founder and Managing Director of Pegasus Insight, says: “The stabilisation of yields at 6.5% is a more encouraging signal than it might first appear.
“Coming after a period of gradual softening, it suggests the sector has found a degree of equilibrium, at least for now, even as regulatory complexity and cost pressures continue to intensify.”
He adds that portfolio structure was increasingly determining resilience, with HMOs, larger portfolios and limited company landlords generally better insulated against rising costs.
Long also warns that landlord sentiment remains subdued and that supply pressures continue to build as divestment outpaces new investment.
“How the market responds once the Renters’ Rights Act beds in will be the defining question for the year ahead.”
