Houses in multiple occupation (HMOs) are delivering average yields of 7.3%, outperforming the wider private rented sector as landlord profit margins narrow, according to data from specialist market research firm Pegasus Insight.
The firm’s Landlord Trends data shows average yields across the buy-to-let sector fell to 6.4% in the final quarter of 2025, down from 6.6% in Q3, marking a widening performance gap between HMO properties and traditional rental portfolios.
Profitability under pressure
The proportion of landlords reporting profitable lettings declined to 85% in Q4, a four-point drop from the previous quarter. A growing minority of landlords are now reporting losses as operating and compliance costs remain elevated.
Mark Long, managing director of Pegasus Insight, said: “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.”
The data reveals an increasingly divided market, with performance diverging between portfolio types as landlords absorb higher costs. Long noted: “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
Long cautioned that the primary risk facing buy-to-let landlords is “not a sudden deterioration in performance, but a more gradual erosion of resilience.” He suggested that long-term stability will increasingly depend on portfolio mix and financial strength.
The findings indicate that while the majority of landlords remain profitable, the sector is experiencing a structural shift favouring more intensive management models over traditional single-let properties.
