Landlord profitability fell in the final quarter of 2025, with one in seven now reporting their lettings activity is no longer profitable. Average achieved rental yields edged down from 6.6 percent to 6.4 percent, while the proportion of landlords operating at a loss rose by two percentage points, according to new analysis from Pegasus Insight.
The findings mark a shift from recent quarters, where profitability had remained relatively stable. Overall, 85 percent of landlords still report a profit on their lettings – down from 89 percent in the preceding quarter – but performance across the sector is becoming increasingly uneven.
HMO landlords outperform as standard portfolios feel the squeeze
Landlords operating Houses in Multiple Occupation continue to outperform the wider market. HMO investors are achieving average yields of 7.3 percent, materially higher than the sector average and enough to offset the added management complexity and regulatory burden that comes with multi-let properties.
By contrast, landlords with standard single-let portfolios are more exposed to rising costs. Without the income diversification that HMOs provide, traditional buy-to-let investors have less room to absorb increases in mortgage repayments, maintenance expenses and regulatory compliance costs.
The growing gap between HMO and standard portfolio performance points to a sector in transition. For landlords weighing their options in 2026, the data suggests that higher-yielding, more intensively managed strategies are pulling further ahead.
Margin for error narrows across the sector
Mark Long, managing director and founder of Pegasus Insight, said the key takeaway from the fourth quarter was not that profitability had weakened dramatically, but that it was becoming more uneven.
“Overall returns remain close to recent highs, but the margin for error is narrowing for a growing proportion of landlords,” he said. “We are 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.”
Long warned that the risk to buy-to-let landlords was not a sudden deterioration in performance, but a more gradual erosion of resilience. In an environment where yields are no longer rising, the ability to absorb further regulatory, operational or economic pressures will increasingly depend on portfolio structure and management efficiency.
What falling profitability means for landlords in 2026
For property investors, the Q4 data reinforces a trend that has been building for several quarters. Costs across the sector – from mortgage repayments and insurance to maintenance and compliance – continue to climb, while rental growth has moderated in many regions.
The two percentage point rise in landlords reporting a loss is notable. While a small minority in absolute terms, it signals that the tail end of the market is growing. Landlords with overleveraged portfolios, properties in lower-demand areas, or those facing significant repair or upgrade bills are most at risk.
For those considering their next move, the data offers a clear steer: portfolio composition matters more than ever. The days of passive buy-to-let returns are receding, and the landlords best placed to weather 2026 are those actively managing costs, optimising rental strategy and – where possible – diversifying into higher-yielding property types.
Editor’s view
The profitability gap between HMO and standard portfolios tells the real story here. Buy-to-let is no longer a passive income play – it is a business that rewards active management and punishes complacency. One in seven landlords operating at a loss is a warning sign the sector cannot afford to ignore.
Author: Editorial Team – UK landlord & buy-to-let news, policy, and finance
Published: 5 February 2026
Sources: Pegasus Insight Q4 2025 Private Rented Sector Analysis
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