Blog: HMOs still deliver yield, but advisers must look deeper – Mortgage Strategy

HMOs are still widely viewed as one of the stronger performing areas of the buy-to-let market and, on the surface, it is easy to understand why.

Pegasus Insight’s Landlord Trends Q1 2026 research found landlords operating HMOs generated average rental yields of 7.6%, compared with 6.3% among non-HMO landlords. However, yield alone only tells part of the story. The same research found HMO landlords owned larger portfolios, generated significantly higher rental income and were more likely to operate as full-time landlords, highlighting how the sector has become increasingly professionalised in recent years.

The wider HMO conversation has changed considerably over the past couple of years. This is no longer simply about identifying a property with strong rental income and securing finance against it. Brokers, landlords and lenders are paying much closer attention to how these properties operate, how resilient the income really is and whether the investment remains sustainable over the longer term.

At lender level, we are seeing far more detailed discussions before applications are even submitted.

Questions around licensing, tenant demand, room layouts, EPC requirements, valuation approach and refinancing strategy are all becoming central to lending decisions. In many ways, that reflects how operationally demanding HMOs have become.

Stable occupancy

Licensing requirements vary widely between councils, while fire safety rules, minimum room sizes and planning expectations have tightened across many parts of the market. Alongside higher borrowing costs, landlords now need assets capable of delivering stable occupancy and reliable income rather than relying on short periods of rental growth.

The latest Pegasus research illustrates that change quite clearly. HMO landlords own an average of 10 properties, compared with 7.6 among non-HMO landlords, while 31% now describe themselves as full-time landlords, versus 19%  of non-HMO investors. Increasingly, this is a market shaped by experienced operators running sizeable portfolios as businesses rather than side investments.

That is why advisers are engaging with lenders much earlier in the process.

From a practical standpoint, brokers are finding that early discussions around licensing position, tenant profile, valuation basis and property classification can prevent delays later in the application journey, particularly on cases involving limited company ownership, multi-unit properties or higher room counts.

In many cases, those conversations are helping landlords secure funding on properties that may previously have fallen outside standard buy-to-let appetite.

Part of the evolution within the market has also been lenders adapting criteria to reflect how professional landlords now operate.

Level of preparation 

We continue to see strong demand across a broad mix of HMO scenarios, from smaller shared houses through to larger multi-unit properties held within company structures. What has changed is the level of preparation. Brokers are increasingly approaching lenders with a clearer understanding of licensing requirements, valuation considerations and exit strategies before a case is submitted, which often leads to a smoother process and better outcomes for clients.

At the same time, brokers are placing greater importance on lenders that can support specialist property types without creating delays or uncertainty during the application process.

That is particularly relevant in parts of the market where opportunities move quickly and landlords require clarity around funding decisions at an earlier stage.

Valuation alone can materially affect how a case progresses. Some HMOs may be assessed using an investment based approach, while others rely more heavily on comparable evidence.

More providers are now comfortable with higher room count properties and non-standard ownership arrangements than was typically the case several years ago.

That broader appetite is becoming particularly valuable as more landlords diversify portfolios and move beyond standard buy-to-let investments.

Operational costs are becoming a growing part of that discussion, too. Pegasus Insight found HMO landlords incurred average annual portfolio expenditure of more than £36,000, compared with around £20,500 among non-HMO landlords. Utilities alone accounted for 19% of HMO expenditure, versus 5% for non-HMO portfolios, reflecting the additional responsibilities that often come with managing shared accommodation.

Void periods, tenant turnover, maintenance costs and local competition all play a major role in performance. In some areas, particularly where investor appetite has accelerated rapidly, parts of the HMO market are beginning to experience greater competition for tenants than regional rental data may initially suggest.

That is why local understanding remains critical. The strongest performing landlords are usually those who understand their tenant demographic exceptionally well and who structure their portfolios with realistic planning in mind.

That creates an opportunity for brokers to provide far more value than simply sourcing finance.

Helping clients understand local demand, lender appetite, operational pressures and refinancing considerations has become just as important as securing the mortgage itself.

Importantly, HMOs remain a significant part of the private rented sector. Pegasus Insight found that 16% of landlords currently hold at least one HMO within their portfolio, averaging 2.7 HMO properties each.

HMOs continue to offer attractive opportunities across many parts of the UK market. The difference today is that success is becoming less about finding the highest yield and more about understanding what sits behind it. For advisers, that means looking beyond the headline numbers and helping clients assess whether an investment is built to perform over the long-term.

Martin Sims is distribution director at Molo Finance