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Demand for houses in multiple occupation (HMOs) remains high among tenants while investors can benefit from more impressive yields than in buy-to-let (BTL). But there are challenges for landlords.
Lower house-price growth, restrictions on reliefs, higher taxes and rental reforms have made the search for yield more tricky across the property market.
However, the latest rental yield figures from Paragon Bank suggest HMO landlords are doing better than the rest of the BTL sector, helped by high demand, low supply and affordability issues for solo tenants. HMO gross yields reached 8.9% at the end of the second quarter of 2026 compared with 7.02% across all BTL properties.
I’m seeing landlords become more selective rather than simply abandon HMOs
Paragon Bank managing director of mortgages Louisa Sedgwick suggests demand for HMOs remains strong because it serves a wide range of tenant groups, from students and young professionals to key workers seeking affordable accommodation in areas where renting a self-contained property can be prohibitively expensive.
“That breadth of demand, combined with the income resilience created by multiple tenancies within a single property, continues to underpin the sector’s appeal,” she says.
“HMOs continue to deliver some of the strongest returns in the private rented sector, with just under eight in 10 of our landlord customers believing they deliver more profitable returns, and a similar amount agreeing that HMOs offer better rental yields than other residential letting property types.”
The opportunity
HMOs offer “significant opportunities” for landlords, says Kim Lidbury, president of lettings agent trade body ARLA Propertymark. They provide a broad range of tenants with more affordable accommodation while landlords get multiple rents from one property.
“HMOs can provide a more accessible route into the rental market, while landlords benefit from multiple income streams and, where well managed, the potential for stronger returns than a traditional single-let property,” says Lidbury.
A high-yielding HMO that effectively becomes a second job is not automatically the better investment
There are, of course, regional variations, with the highest yields typically achieved where property prices are lower.
Lendlord data shows the Northeast boasted the highest HMO yields in 2025 at 15.1%, while London was the lowest at 8%.
The best returns are coming from ex-local-authority areas and university cities, with strong tenant demand but comparatively low purchase prices. However, although yields can be attractive, they do not tell the whole story, according to Molo Finance distribution director Martin Sims.
“We have seen average HMO yields of around 8.6%, and there are parts of the Northeast and Wales where the numbers can be higher still,” he says. “The more useful measure is why that return prevails there and whether it is sustainable.
“There is still high demand for shared accommodation in the right locations. Students and young professionals need affordable places to live, and in many towns and cities the supply simply does not exist. A good HMO landlord has an opportunity, particularly where purchase prices are lower and room rents remain strong.”
Compliance cost
Nevertheless, although HMO demand remains strong, the compliance burden continues to increase.
HMO landlords have to contend with licensing rules that can vary by local authority and in some cases may need planning permission for conversions.
There are minimum room sizes to follow alongside the uncertainty that local authorities can set their own dimensions. Plus, landlords must ensure fire alarms are interlinked, there is a valid annual gas safety certificate and an electrical installation condition report is obtained every five years. HMOs, like all rented homes, must also have a minimum energy performance certificate rating of E — set to rise to C from October 2030.
HMOs can provide a more accessible route into the rental market, while landlords benefit from multiple income streams
All these compliance issues as well as general refurbishment bills mean HMO running costs are now absorbing 45% of HMO rental income, according to Pegasus Insight.
The Mortgage Consultancy director Hannah Vandervennin says HMOs can be a strong cashflowing strategy but warns that landlords can be fooled into thinking they are a more hands-off commitment than they actually are.
She explains: “HMOs can be intensive once you factor in licensing, management, maintenance, tenant turnover and increasing regulation.”
This means the headline yield can “flatter to deceive”, adds Yellow Brick Mortgages co-founder and managing director Stephen Perkins, when you also include utilities, greater wear and tear, and “potentially more specialist mortgage requirements”.
As a result, Sims explains, the HMO market is becoming more professional and polished.
“An HMO is an involved business to run,” he says. “You have multiple tenants, higher turnover, more management and a regulatory position that can differ considerably from one local authority to another. The landlord who really understands their local market and knows who best to let to is in a very different position from somebody who has simply found a property with a high yield on a spreadsheet.”
Landlords are adapting to a new framework, which can make it more difficult to plan ahead
As if the existing rules weren’t enough, the Renters’ Rights Act has provided yet another challenge this year.
The first stage of the rental reforms was implemented in May, banning no-fault evictions, shifting all tenancies onto rolling terms and extending notice periods to four months.
That is a challenge for all types of BTL landlord but there are extra pressures if you run an HMO, because you have multiple tenants to deal with in one property.
“The arrival of the Renters’ Rights Act means many landlords are more alive to potential risks than ever,” says National Residential Landlords Association (NRLA) chief policy officer Chris Norris.
“They are concerned that they will struggle to regain possession, using legitimate grounds to do so, due to an overwhelmed court system with its consequent wait times. This obviously presents specific issues for HMO landlords, who often need to regain possession from an anti-social tenant without unduly affecting others in the property.”
The act adds another layer of complexity, especially in the student market where a well-established operating model has traditionally been built around fixed academic-year tenancy cycles. HMO student landlords now need to cite a Ground 4A exemption on a Section 8 order so that they can effectively move old student tenants out and new ones in before the start of an academic year.
HMOs can be intensive once you factor in licensing, management, maintenance, tenant turnover and increasing regulation
National Association of Property Buyers founder Jonathan Rolande says rolling tenancies and tighter eviction rules make managing multiple tenants under one roof a bigger challenge, particularly with student lets.
He explains: “Many now face awkward gaps between tenancies and less certainty over turnover timing. But with proper planning and support these challenges can be overcome.”
Nevertheless, many landlords are reviewing their tenancy arrangements, according to Sedgwick.
“Landlords are adapting to a new framework, which can make it more difficult to plan ahead, whether that’s marketing rooms for the next academic year, co-ordinating maintenance works or scheduling refurbishment projects between cohorts,” she says.
In an environment where it is difficult to see clear returns on investment due to increased operational costs, the NRLA has warned that many HMO landlords are considering whether to continue or to switch to a less risky, lower-effort form of investment.
The landlord who really understands their local market is in a very different position from somebody who has simply found a property with a high yield on a spreadsheet
Norris adds: “This would be a disaster for the many tenants who depend on this market.”
Vandervennin is seeing more landlords consider leasing existing HMO stock to social-housing providers on longer-term contracts, particularly since the Renters’ Rights Act reforms started coming through.
She says: “Depending on the structure, that can mean more certainty over income, fewer voids and less day-to-day management.
But you still need to do your homework. Who is the provider? What does the lease say? Who handles repairs?
Does the planning work? Will your lender accept it?”
Perkins says conventional single lets can offer a simpler alternative, even if the headline yield is lower.
“The important comparison is the net return after every cost and the time involved in managing it. A high-yielding HMO that effectively becomes a second job is not automatically the better investment.”
Others are considering shifting to smaller HMOs where there may be fewer licensing and planning rules, as well as multi-unit freehold blocks and more mixed portfolios.
HMOs continue to deliver some of the strongest returns in the private rented sector
WeFinance HMOs founder Nouran Moustafa adds: “I’m seeing landlords become more selective rather than simply abandon HMOs.
“The mistake is switching purely to escape compliance. The alternative still has to stack up on net yield, finance, management and exit.”
Staying committed
Despite the changes and costs, more experienced HMO landlords appear committed to the sector, Paragon research suggests.
Analysis by the lender in August found that experienced HMO landlords who had rented out properties for more than 10 years were continuing to invest, with the largest proportion expecting to spend more than £10,000 on improvements over the next 12 months.
This commitment suggests that the main HMO challenges do not remove the opportunity in the sector.
This article featured in the October 2026 edition of Mortgage Strategy.
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Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by finopulse.
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