HMO Yields Are Falling Below 10% — Here's Where the Money Still Is

The 9.6% Number That Should Stop Every HMO Investor in Their Tracks

Lendlord's Q4 2025 data, reported by [propertywire.com](https://www.propertywire.com/news/uk/hmo-rental-income-rises-5000-annually-as-yields-decline/), puts the national average HMO yield at 9.6% — down from 10.4% the previous year. That's the first time the sector has dipped below the 10% threshold in the data series. Across 1,158 HMO properties analysed, it's a statistically meaningful sample, not a rounding error.

Before anyone panics: the same data shows average annual HMO rent rising from £28,248 to £33,591 — an 18.9% increase in a single year. So yields are compressing not because rents are falling, but because property values are rising faster than rent growth in most regions. That's a structurally different problem than a rental market in decline, and it demands a different response.

For context, the wider private rented sector is in worse shape. Pegasus Insight's Q4 2025 Landlord Trends research, cited by [propertyindustryeye.com](https://propertyindustryeye.com/one-property-type-continues-to-crush-buy-to-let-rental-yields/), puts average PRS yields at just 6.4% — down from 6.6% the prior quarter. HMOs at 9.6% are still outperforming standard buy-to-let by a margin that matters. Mark Long, MD of Pegasus Insight, described the shift as "a clearer separation between business models" — HMOs providing insulation, standard portfolios facing tighter margins. That framing is exactly right.

North East at 15.1%: The Yield Leader Most Investors Are Ignoring

Here's the number I keep coming back to: the North East is delivering average HMO yields of 15.1%, against average property values of just £232,461. That's not a typo. A region where you can buy an HMO for under a quarter of a million pounds and still generate yields that most London investors would consider fantasy.

The catch — and there is always a catch — is volume. The North East accounts for just 3.6% of all HMO properties in the Lendlord dataset. That's thin supply, which means deal flow is limited and competition for quality stock is intensifying as yield-hunters migrate north. The yield is real. The scalability is constrained.

Still, for an investor building a concentrated, high-yield portfolio rather than a geographically diversified one, the North East arithmetic is hard to argue with. At £232,461 average values, you're looking at a manageable entry point compared to the national picture. The yield compression story hasn't hit this region yet with the same force it's hitting the South.

The North West tells a slightly different story. Yields sit at 11.4% — lower than the North East but still comfortably above the national average — and the region holds the largest share of the HMO market at 17.9%, up from 15.1% the previous year. That market share growth is the signal. Investors are already voting with their capital. The North West is where volume and yield intersect, which is why I'd argue it's the more practical target for investors building scale rather than chasing the highest possible percentage.

London's 8% Yield: When Capital Appreciation Becomes the Entire Thesis

Greater London sits at the opposite end of the spectrum. Average HMO values of £684,724 — up £24,497 year-on-year — generate average annual rental income of £55,017. That works out to a yield of roughly 8%, the lowest of any major region in the dataset.

Eight percent sounds reasonable until you consider that you're deploying nearly three times the capital of a North East investment for a yield that's almost half. The only rational argument for London HMOs on a pure yield basis is if you believe capital appreciation will compensate over a 10-15 year hold. That's a legitimate position — London property has historically delivered — but it's a fundamentally different investment thesis. You're not buying yield. You're buying optionality on future value.

I'm not saying London HMOs are wrong. I'm saying investors need to be clear-eyed about what they're actually buying. Conflating a capital appreciation play with a yield strategy is how portfolios end up underperforming expectations. If your goal is income now — genuine passive income from rental yield — London is the hardest place in England to make the numbers work.

Aviram Shahar, co-founder and CEO of Lendlord, noted that "the importance of HMOs to property investors has never been clearer" and pointed to the £5,000 annual rent increase as evidence of underlying demand strength. He's right on the demand point. But demand strength doesn't automatically translate to yield strength when acquisition costs are rising in parallel.

What Yield Compression Actually Means for Your Next Purchase Decision

Yield compression in a rising rent environment is a specific kind of problem. It means you're not losing income — you're paying more to access the same income stream. The practical implication is that entry price discipline matters more now than it did when yields had more buffer.

At 10.4%, a property purchased at a slightly elevated price still delivered strong returns. At 9.6% nationally — and lower in many southern regions — overpaying on acquisition is a far more consequential mistake. The margin for error has narrowed, as Pegasus Insight's Mark Long put it. That's not alarmist. It's just arithmetic.

For investors currently evaluating deals, I'd suggest three adjustments. First, weight your search toward regions where yield compression hasn't fully taken hold — the North East and North West remain the clearest examples in the current data. Second, stress-test your acquisition price against a scenario where yields compress a further 0.5-1% over the next 12 months; if the deal still works, it's robust. Third, consider consulting a qualified financial adviser or property investment specialist before committing capital, particularly if you're entering a new region where local market dynamics differ from your existing experience.

The national yield falling below 10% is a headline. But headlines describe averages, and averages obscure the deals that are still genuinely exceptional. The gap between the highest and lowest regional yields in the Lendlord data exceeds 10 percentage points — 15.1% in the North East versus 8% in London. That's not a marginal difference. That's a completely different investment proposition depending on where you buy.

The investors who will do best in this environment aren't the ones who panic at the 9.6% headline or dismiss it as irrelevant. They're the ones who read the regional data, understand what's driving the compression, and position their capital accordingly before the rest of the market catches up. The North West's market share grew from 15.1% to 17.9% in a single year — that's not a coincidence. That's capital flowing toward where the yield-to-price ratio still makes sense. The question isn't whether HMO yields are falling. They are. The question is whether you're buying in the regions where the money still is.