Rental yields hold firm at 6.5% as tenant demand remains resilient
Rental yields across the Private Rented Sector have stabilised after a period of modest softening, with average gross yields edging up to 6.5% in Q1 2026 from 6.4% in Q4 2025, according to the latest Landlord Trends research from Pegasus Insight.
Overall profitability remains solid, with 84% of landlords describing their lettings activity as profitable, though this marks a second successive quarterly decline as the gap between income and rising operational costs continues to narrow for some. The proportion of loss-making landlords eased back to 4% in Q1, down from 6% in Q4 2025, suggesting the picture remains manageable for the majority despite an increasingly demanding operating environment.
Performance continues to vary meaningfully across portfolio types. Landlords operating Houses in Multiple Occupation (HMOs) are again the standout performers, recording average yields of 7.6% — well ahead of the market-wide figure. At the regional level, the North West is generating the strongest returns, with average yields of 7.1%, while London-based landlords continue to achieve the lowest, at 5.3%, reflecting the capital’s higher acquisition costs relative to rental income.
Tenant demand underpins income stability
Despite the pressures facing landlords, tenant demand continues to provide a broadly supportive backdrop. More than half of landlords, 58%, rate current tenant demand as strong, though this figure has eased by 15 percentage points compared with the same period a year ago, reflecting a gradual softening in the intensity of demand as the market rebalances.
Separate Wave 1 2026 Tenant Trends research from Pegasus Insight, based on 3,000 interviews with private renters, reinforces the picture of a structurally stable occupancy base. The typical renter has now been in their current property for an average of 5.3 years, a figure that has been gradually rising, and two thirds say they plan to stay beyond their current agreement, intending to remain for a further 4.3 years on average. Just 17% of tenants plan to leave their current property, with most citing personal circumstances such as relocating or upsizing rather than dissatisfaction with their tenancy. Over two thirds rate their recent rental experience as positive – a figure that has held steady year on year.
Mark Long, founder and managing director of Pegasus Insight, commented: “The stabilisation of yields at 6.5% is a more encouraging signal than it might first appear. Coming after a period of gradual softening, it suggests the sector has found a degree of equilibrium, at least for now, even as regulatory complexity and cost pressures continue to intensify.
“What the data consistently shows is that profitability is increasingly a function of portfolio structure. HMO landlords, those with larger portfolios and those operating through limited company structures continue to demonstrate greater resilience, while more traditionally structured portfolios have less of a buffer as costs remain elevated.
“The tenant picture is genuinely important context here. Long tenures, strong satisfaction scores among those with direct landlord relationships, and continued intention to stay all point to an occupancy base that is far more stable than the regulatory debate might suggest. For lenders and investors, that underlying stability is a fundamental part of the investment case for buy-to-let.
“The challenge for the sector is translating that structural stability into sustained confidence. With landlord sentiment still subdued and divestment continuing to outpace acquisition, supply remains under pressure. How the market responds once the Renters’ Rights Act beds in will be the defining question for the year ahead.”