Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Strategy. Read the original article for full details.

HMOs Remain Strong for Yields, but Market Grows More Complex

Recent research from Pegasus Insight’s Landlord Trends Q1 2026 shows that Houses in Multiple Occupation (HMOs) continue to outperform non-HMO properties in terms of average rental yields. However, the sector is becoming increasingly complex, with greater emphasis on operational demands and regulatory compliance.

According to the research, landlords operating HMOs achieved average rental yields of 7.6%, compared to 6.3% for non-HMO landlords. HMO landlords also tend to own larger portfolios, with an average of 10 properties versus 7.6 for non-HMO landlords. Additionally, 31% of HMO landlords describe themselves as full-time landlords, compared to 19% of non-HMO investors, indicating a trend towards increased professionalisation in the HMO sector.

The report highlights that the HMO market has evolved beyond simply identifying properties with strong rental income. Brokers, landlords, and lenders are now focusing more on how HMOs operate, the resilience of their income, and the sustainability of investments over the long term. Lenders are engaging in more detailed discussions before applications are submitted, with key considerations including licensing, tenant demand, room layouts, EPC requirements, valuation approaches, and refinancing strategies.

Licensing requirements for HMOs vary significantly between councils, and fire safety rules, minimum room sizes, and planning expectations have tightened in many areas. These changes, combined with higher borrowing costs, mean landlords must prioritise stable occupancy and reliable income.

For letting agents and inventory clerks, the increased operational demands and regulatory scrutiny mean that attention to detail in property management and compliance is more important than ever. Early engagement between brokers and lenders around licensing, tenant profiles, and property classification is helping to prevent delays, especially for properties with limited company ownership, multi-unit layouts, or higher room counts.

The report also notes that lenders are adapting their criteria to reflect the professionalisation of the sector, with more providers now comfortable with higher room count properties and non-standard ownership arrangements. Brokers are approaching lenders with a clearer understanding of licensing, valuation, and exit strategies, which is leading to smoother processes and better outcomes for clients.