HMOs continue to outperform the wider private rental sector, achieving average yields of 7.3% at a time when overall landlord profitability is beginning to show signs of strain.

Average rental yields across the private rented sector (PRS) slipped to 6.4% in Q4 2025, down from 6.6% in the previous quarter when yields reached their highest level in a decade, according to the latest Landlord Trends research from Pegasus Insight.

Although the majority of landlords remain profitable, underlying pressures are starting to emerge. Around 85% reported their lettings were still generating a profit, a modest four-percentage-point decline quarter on quarter. At the same time, the share of landlords operating at a loss increased by two percentage points, indicating a growing minority are feeling the financial impact of sustained cost pressures.

Returns across the sector are also becoming increasingly uneven. Landlords running houses in multiple occupation are significantly outperforming those with standard buy-to-let portfolios, with stronger yields helping to absorb higher operating and management costs. By contrast, conventional landlords continue to face tighter margins as elevated expenses erode profitability.

Mark Long, managing director and founder of Pegasus Insight, commented: “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.

“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.”