Houses in Multiple Occupation (HMOs) remain one of the most closely watched segments of the BTL market, largely because they have been delivering higher income during a modest capital growth era.
Typically defined as properties let to three or more tenants from separate households who share facilities, HMOs have long appealed to landlords seeking stronger yields, particularly in urban areas and university towns.
That performance has held up into 2026. Average gross yields across BTL sit at around 7.15%, but HMOs continue to outperform, with yields closer to 8.6% on average, and higher still in regions such as the North East and Wales where rental demand remains strong and purchase prices are lower.
At the same time, room rents remain resilient, averaging £747 per month across the UK and approaching £1,000 in London, even as wider rental growth slows.
Complex business
These stronger returns drive investor interest but come with a more complex risk profile. With more tenants, HMOs are more exposed to operational pressures, including higher management costs and increased risk of wear and tear.
The fact there are multiple tenancies can spread the risk of void periods but also carry a heavier administrative burden for landlords trying to fill the rooms, in comparison with a single household. And in a market where rent growth has slowed to around 3.5% annually, the ability to absorb rising costs is more limited than in previous years.
Regulation is another factor shaping the future of the sector. The Renters’ Rights Act, which begins phased implementation from May 2026 in England, is the most significant shift in landlord obligations for a generation. Key measures include the removal of Section 21 “no-fault” evictions, the move to periodic tenancies, restrictions on rent increases to once per year, and tighter rules around upfront payments and tenant selection.
High tenant turnover and compliance
For HMO landlords, these changes are particularly relevant. The model often relies on higher tenant turnover, whether in student or young professional markets, and greater flexibility in managing occupancy.
The removal of Section 21 and increased scrutiny of rent setting will require a more structured approach to tenancy management and a longer-term view on income planning. Alongside this, the introduction of a private rented sector database and a landlord ombudsman from late 2026 will increase oversight and raise the bar on compliance.
However, the outlook for HMO investments remains healthy and all landlords should be encouraged to seek further advice to make sure they are meeting any new compliance expectations in their local area.
Mandatory HMO licensing already applies to larger properties in England, with additional and selective licensing schemes varying by local authority. Current estimates suggest there are roughly 470,000 HMOs in England, with the majority of landlords already ahead of requirements although coverage varies widely by region.
Landlords have been actively improving and investing in properties to put in energy-saving measures like wall and cavity insulation or solar panels to get ahead of the incoming new EPC requirements shortly to be confirmed after the consultation ends this year.
Although, those still unable to get a property up to band E without exceeding the maximum spend threshold of £3,500 due to property size or volume of the work can register a five-year exemption.
Professionalising the approach
While there is a raft of considerations for HMO investors, the outlook remains positive. Demand for shared accommodation continues to be supported by affordability constraints in the wider housing market, while supply remains uneven across regions. With house price growth subdued at around 2.4% annually, income remains the primary driver of returns, and HMOs continue to offer a compelling proposition for landlords who can manage the model well.
Lean into HMO advice
For brokers, this creates a clear advisory opportunity. Supporting clients by stress testing their deals against higher rates and tighter rules will be key, particularly for larger properties with three or more bedrooms where margins can shift quickly.
Portfolio management is also coming into sharper focus, with refinancing strategies used to release capital for refurbishment, improve EPC ratings, or reposition assets in stronger yielding regions.
There is also a growing need to guide clients on location strategy, as regional yield differences widen, and on cost control, from refurbishment planning through to ongoing management structures. In many cases, the role of the adviser is shifting from transaction support to longer-term portfolio planning.
In this environment, HMOs are not becoming less relevant, but they are becoming more demanding. The landlords who succeed will be those who treat them as a structured, well-managed investment, and the brokers with the in-depth local and national knowledge to support them will play a central role in helping shape that transition.
