HMO landlords remain committed to investing in the sector despite rising costs and a tightening regulatory framework, according to the latest research from Paragon Bank.
Its data shows that landlords are not only expanding their portfolios, with four in five intending to increase or maintain their holdings over the next 12 months, they are also willing to spend substantial sums ensuring their existing properties meet the required standards.
What is driving investment in the sector?
According to Paragon, the HMO sector continues to be attractive to landlords because of the higher rental returns it offers.
Its survey found that 82% of HMO landlords believed they offered better rental yields than other residential letting properties, while 79% reported better overall returns.
And the lending data provides clear evidence of this, with HMOs generating an average gross rental yield of 8.90% during the second quarter of 2026, the highest of any property type recorded during the period.
That compares with an average of 7.02% across all landlord properties, 7.18% for multi-unit blocks, 6.45% for flats and 6.31% for terraced houses.
It means HMOs produced an average gross yield almost 1.9 percentage points above Paragon’s overall figure, although higher management, maintenance and compliance costs mean the advantage in net returns is likely to be a little narrower.
Who’s investing?
Those investing in the sector tend to be experienced landlords, with three-quarters of those surveyed having let property for at least 10 years.
More than half cited long-term investment as one of their main reasons for becoming an HMO provider.
As Louisa Sedgwick, managing director of mortgages at Paragon Bank, explains: “HMOs can be more complex to manage than standard buy-to-let properties, but they remain attractive to landlords who understand the market and have the expertise to operate successfully within it.”
Where are they spending the money?
That longer-term approach is evident in the amount those landlords are prepared to spend on their existing properties.
Some 86% had carried out work during the previous year, including 62% within the past six months, with another 18% currently upgrading their properties.
Further spending is expected, too, with 54% saying they are extremely likely to carry out more improvements over the next 12 months.
And they are prepared to spend significant sums. 43% expect to spend more than £5,000 over the next 12 months, with the largest group — 28% — expecting to spend upwards of £10,000.
Typical work includes upgrading their properties’ facilities, as well as compliance requirements such as alarms and fire doors.
Energy efficiency is another key area of investment as landlords prepare for new minimum standards.
The government has now confirmed that privately rented homes in England and Wales will have to meet new energy efficiency standards equivalent to EPC C by 1 October 2030, with landlords expected to spend up to £10,000 per property before they can claim an exemption.
Landlords, though, have already been preparing for the new rules, with separate Paragon research finding that 28% have brought forward energy efficiency work.
Sedgwick says: “What stands out is that landlords are continuing to invest as standards, costs and regulation evolve. The level of planned expenditure suggests that many are focused on maintaining quality, supporting compliance and ensuring their properties remain well positioned over the long term.”
