Annual HMO Market Report 2026

Our Data

This report draws on The HMO Mortgage Broker's proprietary transaction and lending data, supplemented by information from our panel of specialist lenders, national licensing statistics, and publicly available property market research. Our position in the market gives us a ground-level view of HMO mortgage activity that complements broader industry data.

UK HMO Rental Yield Performance

Rental yields across the UK HMO market remained robust in 2025 and continue to strengthen into 2026. Northern and Midlands cities continue to deliver the highest gross yields, driven by strong tenant demand and comparatively lower acquisition costs. London yields have softened marginally as purchase prices remain elevated relative to achievable rents.

The data below represents average gross rental yields for HMO properties in each city, based on transactions processed through our brokerage and corroborated against publicly available letting data.

Liverpool and Manchester lead the national picture on gross yield, both driven by sustained demand from young professionals and a limited pipeline of new HMO stock in sought-after inner-city postcodes. Birmingham and Leeds continue to attract significant investor interest as the cities develop their professional and student populations.

London's slight yield compression reflects the ongoing mismatch between high property values and rent growth that — while still positive in absolute terms — is growing more slowly than in regional cities. Despite the lower yield, London retains strong demand characteristics and offers capital growth potential not replicated elsewhere.

HMO Mortgage Market Analysis

Rate Trends in 2025 and 2026

HMO mortgage rates fell meaningfully through 2025 as the Bank of England base rate declined from its peak. By Q4 2025, the most competitive two-year fixed rates for 75% LTV HMO purchases had moved into the 4.5–5.2% range, down from a peak above 7% seen in late 2023. Five-year fixes followed a similar trajectory, with leading rates available below 5% for borrowers with strong profiles and smaller HMOs.

Into 2026, rates have continued to edge downward. The current pricing environment, combined with strong rental growth, has materially improved debt service coverage ratios and made new acquisitions more viable than at any point since 2022.

Lender Appetite

Lender appetite for HMO mortgages improved significantly across 2025. Several challenger lenders and building societies expanded their HMO criteria, accepting smaller deposits, considering properties with more rooms, and relaxing minimum income requirements. The number of lenders willing to consider large HMOs (7+ rooms) grew notably, broadening access to a segment previously served by only a handful of specialist providers.

LTV Trends

The typical maximum LTV for HMO purchase mortgages remains 75–80%, with some lenders offering up to 80% LTV for smaller, more straightforward properties. For large HMOs and complex structures (limited company SPVs, multi-unit freeholds), 70–75% LTV is more typical. Remortgage LTVs have tracked broadly in line with purchase criteria.

Product Type Breakdown

Regulatory Landscape

Licensing Updates

Mandatory HMO licensing thresholds remain unchanged in England: properties occupied by five or more people forming two or more households require a mandatory licence. However, the continued rollout of additional and selective licensing schemes at council level means that the practical licensing requirement for new HMO investors is now broader than the mandatory threshold in many areas.

Councils are also increasing enforcement activity. Fines for operating without a licence — or for breaches of licence conditions — have increased, with civil penalty notices reaching up to £30,000 for serious offences. The Renters' Rights Bill introduces further obligations on landlords that will affect HMO operations from 2026 onward.

Article 4 Directions

The spread of Article 4 Directions — which remove permitted development rights to convert residential properties to HMOs — continues. As of early 2026, Article 4 Directions covering HMO use (change from C3 to C4 use class) are in force across most major English cities including Manchester, Leeds, Birmingham, Bristol, Nottingham, Southampton, and large parts of London. This means that planning permission is required to convert a property to an HMO in these areas, adding a layer of cost, risk and time to new HMO creation.

The commercial effect of Article 4 spread is meaningful: it restricts new supply while doing nothing to reduce demand, supporting the rental yields and occupancy rates of existing HMO stock. Experienced investors view established HMOs in Article 4 areas as particularly attractive precisely because of this supply constraint.

Minimum Room Size Enforcement

The 2018 regulations requiring minimum room sizes in licensed HMOs — 6.51 m² for a single adult, 10.22 m² for two adults — are now firmly embedded in council enforcement practice. Properties with rooms below the minimum are not licensable and are increasingly flagged at application stage. Investors acquiring existing HMOs should conduct careful due diligence on room measurements before exchange.

Impact on Investment

Investment Outlook 2026

Best Performing Cities for HMO ROI

On a total return basis — combining rental yield, low void rates, and manageable entry costs — Manchester, Liverpool and Birmingham continue to represent the strongest risk-adjusted opportunities for HMO investors in 2026. All three cities benefit from large student and young professional populations, well-developed public transport networks, and robust demand for high-quality shared accommodation.

Emerging Hotspots

Several secondary cities and large towns are attracting increased HMO investor interest in 2025–26. Coventry, Nottingham, Leicester and parts of the Midlands corridor offer gross yields comparable to the top-tier cities but with lower competition for assets and — in some locations — fewer Article 4 restrictions. Coastal cities including Portsmouth and Southampton are also seeing increased activity driven by strong naval and student populations.

Risk Factors

Expert Commentary

"The fundamentals of the HMO market in 2026 are as strong as I have seen in a decade of specialist HMO mortgage broking. Demand for quality shared accommodation continues to significantly outpace supply in most major cities, and the easing of mortgage rates from their 2023 peak has restored the economics for new acquisitions that looked marginal twelve to eighteen months ago.

"That said, the regulatory environment demands respect. The investors who will prosper in 2026 and beyond are those who treat compliance as a core part of their investment thesis — not an afterthought. Properties that are fully licensed, properly managed and in demonstrable demand are commanding strong prices and generating consistent returns. Those that are not are being left behind.

"On the mortgage side, lender appetite is genuinely the best it has been for HMO investors in several years. We now regularly access rates and criteria that would not have been available through a standard broker channel, and the breadth of our panel means we can find solutions for complex situations — portfolio landlords, limited company structures, large HMOs — that might be rejected elsewhere."

Methodology and Data Sources