Rental yields steady as long-term tenants support investor confidence

| Marc da Silva

Rental yields across the private rented sector remained broadly stable during the opening months of 2026, as resilient tenant demand continued to support landlord returns despite mounting operational pressures.

Fresh research from Pegasus Insight shows that average gross rental yields edged up to 6.5% in Q1 2026, compared with 6.4% in the previous quarter, suggesting the market has steadied following a period of softer performance.

While landlords continue to grapple with rising costs and regulatory change, the majority are still operating profitably. Some 84% of landlords described their lettings activity as profitable, although that figure has now declined for a second consecutive quarter as margins tighten. At the same time, the proportion of landlords making a loss fell back from 6% to 4%, indicating that most investors remain financially resilient despite the more challenging backdrop.

Houses in Multiple Occupation (HMOs) continue to deliver the strongest returns, with landlords in the sector recording average yields of 7.6%, comfortably ahead of the wider market average. Regionally, the North West remains the top-performing area for returns at 7.1%, while London continues to generate the weakest yields at 5.3%, reflecting the capital’s significantly higher property values relative to rental income.

The research also highlights that tenant demand remains a key pillar of market stability. More than half of landlords, 58%, said demand from renters remains strong, although this has eased compared with the exceptionally heated conditions seen a year ago as supply and demand gradually rebalance.

Separate tenant research by Pegasus Insight, based on interviews with 3,000 renters, suggests occupancy levels are likely to remain stable. The average tenant has now lived in their current property for 5.3 years, while two-thirds intend to remain beyond their current tenancy agreement, expecting to stay for a further 4.3 years on average.

Only 17% of renters said they planned to move, with most citing life changes such as relocating or needing more space rather than dissatisfaction with their landlord or property. More than two-thirds of tenants described their rental experience positively, a figure that has remained consistent year-on-yea

Mark Long, founder and managing director of Pegasus Insight, commented: “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.
“What the data consistently shows is that profitability is increasingly a function of portfolio structure. HMO landlords, those with larger portfolios and those operating through limited company structures continue to demonstrate greater resilience, while more traditionally structured portfolios have less of a buffer as costs remain elevated.
“The tenant picture is genuinely important context here. Long tenures, strong satisfaction scores among those with direct landlord relationships, and continued intention to stay all point to an occupancy base that is far more stable than the regulatory debate might suggest. For lenders and investors, that underlying stability is a fundamental part of the investment case for buy-to-let.
“The challenge for the sector is translating that structural stability into sustained confidence. With landlord sentiment still subdued and divestment continuing to outpace acquisition, supply remains under pressure. How the market responds once the Renters’ Rights Act beds in will be the defining question for the year ahead.”
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