Are HMOs Still a Good Investment in 2026? Why We’re Still Investing and So Are Our Investors

July 1, 2026

Estimated read time: 10 minutes
Written by Thomas Abram, Group Marketing Executive

A clear answer for investors

HMOs can still be a good investment in 2026, but only when they are developed, licensed, managed and financially assessed properly from the start.

That distinction matters more than ever.

The HMO market has changed. Regulation is tighter, refurbishment costs can move quickly, tenant expectations are higher, and local councils are more focused on licensing, standards, management and enforcement. Investors now need to look beyond headline yields, glossy refurbishment photos and simple claims that “HMOs are strong.”

At Foot Forward Property Investments, we are still investing in HMOs because we take a long-term view. We are not a firm that looks at regulation on a macro level, sees reform such as the Renters’ Rights Act, and decides the sector is no longer investable. We look at the underlying need, which is still very clear: high-quality, affordable rental accommodation remains in demand, especially as traditional flats and single-let rental prices have continued to move beyond what many working tenants can comfortably afford.

For over 34 years, we have worked through changing markets, rising costs, lending shifts, regulatory reform and periods where less experienced landlords have left the sector. Across more than 450 completed properties, our view has remained consistent: good housing, built properly, managed properly, in the right locations, will always have a place in the UK rental market.

That does not mean every HMO is a good investment. It means the gap between a well-developed, properly managed HMO and a poor-quality, poorly planned HMO is now wider than ever.

Why we are still investing in HMOs in 2026

We still invest in HMOs because the long-term fundamentals remain strong.

There is still a very real need for affordable, well-managed shared accommodation across many parts of the UK. Many tenants do not want, or cannot justify, the cost of renting a full flat by themselves. Others want bills included, a furnished home, a good location, modern facilities and the flexibility that a professionally managed HMO can provide.

That demand does not disappear because regulation changes. In many ways, tighter regulation can make the sector healthier when it removes poor operators from the market and raises the standard expected from landlords, developers and managers.

The Office for National Statistics continues to track private rent inflation through its Price Index of Private Rents, which covers both new and existing tenancies. Its private rent and house price releases remain useful independent reference points for investors trying to understand rental affordability and wider housing pressure.

When rents on flats and houses rise sharply, professionally managed HMOs can become more attractive to tenants who want quality accommodation without taking on the full cost of a self-contained property. That is not about exploiting affordability pressure. It is about providing a better housing option for people who want a clean, safe, compliant and well-managed home at a more accessible monthly cost.

This is why we still believe in the model.

The rental market has changed, but demand has not disappeared

A common mistake investors make is assuming that regulatory change automatically reduces demand. It does not.

The Renters’ Rights Act has changed the private rented sector, including the end of Section 21 “no fault” evictions, according to Government guidance. Shelter’s professional guidance has also noted the importance of understanding how the reforms affect possession, tenancy management and landlord obligations.

For some landlords, that change feels uncomfortable because their business model relied on flexibility that no longer exists in the same way. For us, it is not a major issue because we have never built our HMO management model around removing good tenants simply to chase a higher rent from someone else.

We believe in doing the right thing for both investors and tenants. A happy tenant who respects the property, pays rent on time and treats the home properly should be valued. Retention matters, stability matters, and good management matters.

Our goal is not to turf out tenants whenever the market moves. Our goal is to create homes where tenants want to stay, while ensuring investors receive strong, sustainable income from a properly managed asset.

That is why the removal of Section 21 does not change our belief in HMOs. It simply reinforces the importance of selecting the right tenants, developing the property to a high standard, managing issues properly and operating within the rules.

As more landlords sell, the remaining quality stock becomes more important

Another reason we still believe in HMOs is the continued pressure on rental supply.

Across the wider private rented sector, many smaller landlords have reviewed their position due to tax changes, higher borrowing costs, increased regulation and rising maintenance costs. The English Private Landlord Survey remains a useful reminder that the landlord market is heavily made up of smaller landlords, with many owning only one property.

When landlords sell, the number of available rental homes can reduce. When fewer rental homes are available, demand for the properties that remain often becomes stronger, especially when those properties are well located, well presented and professionally managed.

That does not mean investors should assume every HMO will let quickly. It means the best properties are likely to stand out more.

In our experience, tenants are increasingly selective. They want good rooms, good kitchens, proper living space, reliable maintenance, fair management and a home that feels professionally run. That suits experienced operators. It does not suit landlords who see HMOs as a cheap conversion model or a way to squeeze as many people into a property as possible.

What about high mortgage and refinancing rates?

We are also very aware that mortgage rates and refinancing rates are high at the moment. This is not something we ignore, minimise or pretend investors do not need to consider carefully.

In fact, we are paying the same refinancing rates as our investors across our own portfolio. We are not commenting on the market from the outside. We are operating in the same lending environment, making the same long-term decisions, and assessing our own assets with the same level of caution that we expect our investors to apply.

That is why HMO investment in 2026 needs to be looked at with patience, proper stress testing and a long-term view. Higher rates can create short-term pressure on monthly cash flow, refinance outcomes and investor confidence, especially for anyone who is over-leveraged or relying on optimistic numbers. This is exactly why we believe investors should work from realistic net income, sensible leverage, proper rental assumptions and a clear understanding of the refinance position before purchasing.

However, we do not believe today’s lending environment should automatically be treated as the permanent new norm. Interest rates move in cycles. Borrowing conditions change as inflation, lender appetite, swap rates, economic confidence and central bank decisions move over time. Investors should not build an investment case purely around the hope that rates fall quickly, but they should also avoid making long-term decisions based only on one difficult point in the lending cycle.

For us, the key is not to build an investment case around the hope that rates fall tomorrow. That would not be responsible. The key is to make sure the HMO stacks up under today’s conditions, while still recognising that property is a long-term asset class and that lending conditions are unlikely to remain fixed forever.

That is why we still take the long-term view. Yes, there may be short-term pain while refinancing rates remain elevated. But for a well-developed, fully compliant and professionally managed HMO in the right location, the longer-term picture can still be strong. Rental demand, affordability pressure, quality housing supply, tenant retention and careful management all matter more over a full investment cycle than a single moment in the lending market.

In our experience, this is where disciplined investors tend to separate themselves from reactive investors. A reactive investor may look only at today’s rate and decide the sector no longer works. A disciplined investor will ask a better question: does the property still make sense when assessed properly, managed properly and held for the long term?

That is the way we look at HMOs. We are not blind to higher borrowing costs. We are living with them too. But we also know that strong HMO assets are not built for a six-month view. They are built for long-term income, long-term demand and long-term capital performance.

Why tighter HMO regulation can be positive for proper operators

We have always supported higher standards in the HMO sector.

That might sound unusual coming from a company that develops and manages HMO investments, but it is important. Regulation, when properly applied, protects tenants and improves the reputation of the sector. It also makes it harder for rogue landlords, weak developers and poor managers to continue operating.

A house in multiple occupation is not just a normal house with locks on the doors. Government guidance explains that an HMO is generally a property rented by at least three people who are not from one household and who share facilities such as a kitchen or bathroom. Large HMOs require mandatory licensing, while local councils may also operate additional licensing requirements.

HMO licensing also includes important standards around room sizes, waste disposal and local authority conditions. Government guidance on HMO licensing reform explains that mandatory national minimum sleeping room sizes and waste disposal requirements form part of the licensing framework.

This is exactly why experience matters. Investors cannot simply look at a property and assume it is suitable because it has six bedrooms, nice furniture and a claimed yield. They need to know whether the room sizes work, whether the amenity provision is right, whether the fire strategy is correct, whether the layout is sustainable, whether the local council will license it, and whether the management team can operate it properly for the long term.

We believe regulation is not the enemy of HMO investment. Poor preparation is.

What risks do HMO investors need to understand in 2026?

A proper HMO investment article should not ignore risk. Investors should understand what can go wrong before they invest, not after.

The main risks we see in the market are usually linked to poor due diligence, unrealistic numbers, weak refurbishment planning, incorrect licensing assumptions and inexperienced management.

1. Buying the wrong property

Not every house can become a strong HMO.

The location must work for the tenant profile. The layout must support proper room sizes, usable communal space, sufficient bathrooms or ensuites, suitable fire escape routes and a practical management setup. Parking, bin storage, outdoor space and local planning policy also matter.

A cheap property is not always a good opportunity. Sometimes it is cheap because the layout does not work, the street is weak, the local tenant demand is poor, or the conversion cost will be much higher than expected.

2. Underestimating refurbishment cost

Refurbishment costs can fluctuate faster than ever. Materials, labour, hidden structural issues, damp problems, drainage problems, electrical upgrades and fire compliance can all affect the final cost.

This is where investors need to be careful. A low refurbishment estimate can make the numbers look attractive at the start, but if the developer later asks for more money, the investor’s yield can be damaged before the property is even finished.

At Foot Forward, our price lock promise is one of the reasons investors continue to work with us. Once the agreed refurbishment price is set, the investor is not exposed to surprise cost overruns from the refurbishment. That gives investors far more certainty when assessing the numbers.

3. Assuming the HMO licence is simple

HMO licensing is not a box-ticking exercise.

Local councils can look closely at room sizes, amenity standards, fire safety, waste arrangements, property condition, management competence and whether the proposed use is appropriate. Investors should never assume that a property will be licensed just because another HMO exists nearby.

Investors should also be cautious when buying an existing HMO. A licence does not automatically mean the property will pass future scrutiny without further work. Standards change, councils inspect, and poorly converted properties can become expensive problems.

4. Relying on inflated rents

Some investment packs are built around ambitious rent assumptions. That can make the yield look attractive on paper, but it can create problems later.

We prefer sustainable rents that tenants can afford and that the local market supports. Overpricing rooms can increase voids, tenant turnover and arrears risk. It can also create unrealistic valuation expectations.

A good HMO investment should not need exaggerated numbers to make sense.

5. Using inexperienced management

Management is where many HMO investments succeed or fail.

A well-developed HMO can still perform poorly if the management is weak. Tenant selection, rent collection, arrears handling, inspections, cleaning, maintenance, licensing renewals, compliance diaries and communication all need to be handled properly.

This is one of the reasons we only manage HMOs we have developed ourselves. We understand the property, the layout, the specification, the tenant profile and the numbers from day one.

6. Overlooking finance and refinance risk

Higher mortgage and refinance rates can put pressure on investors who have not stress-tested their figures correctly.

This is why investors should avoid assessing an HMO only on the best-case scenario. They should understand what happens if refinancing takes longer, if rates remain higher for a period, if lender criteria change, or if the valuation comes in differently to the original expectation.

We believe strong HMO investing is about realism. It is better to understand the risks properly at the start than to be surprised by them later.

Why experience matters more than ever for HMO investors

In 2026, experience is not just a nice extra. It is a risk-control factor.

The HMO sector now requires investors to think about planning, licensing, build cost, valuation, tenant demand, management standards, compliance, refurbishment quality and exit strategy before committing funds. That is a lot to manage without the right team.

Foot Forward Property Investments has over 34 years of property experience and has completed more than 450 properties. That matters because we have seen different market cycles, including periods of high interest rates, increased regulation, changing lender attitudes, rising refurbishment costs and shifts in tenant behaviour.

We do not view HMOs as a short-term trend. We view them as a long-term housing model that works when developed and managed correctly.

That is why our investors continue to invest with us. They are not just buying a converted property. They are working with a team that handles acquisition, design, refurbishment, compliance, letting, management and ongoing support.

Our approach: quality housing first, investment performance follows

A strong HMO should work for the investor and the tenant.

For the investor, the property needs to be financially viable, compliant, professionally managed and built with long-term performance in mind. For the tenant, the property needs to be safe, comfortable, clean, practical and fairly managed.

We believe those two aims should work together.

When tenants are happy, they are more likely to stay. When the home is properly maintained, the asset is better protected. When rents are realistic, occupancy is more stable. When compliance is managed properly, investor risk is reduced.

This is why our model is not built around chasing the highest possible rent at any cost. It is built around creating good homes that support sustainable investment performance.

Why the Renters’ Rights Act does not change our belief in HMOs

The Renters’ Rights Act is one of the biggest changes to the private rented sector in recent years. It has changed the way landlords need to think about tenancy management, possession routes and long-term tenant relationships.

For poor operators, this creates pressure. For professional operators, it creates a clearer need for proper systems.

We welcome a market where tenants are treated fairly, where poor landlords are pushed out, and where professional landlords and developers are held to higher standards. The HMO sector has had too many bad examples over the years, and those examples damage trust for everyone.

We do not see tighter regulation as a reason to stop investing. We see it as a reason to invest more carefully, build better homes and work only with experienced partners.

What should investors look for in an HMO opportunity in 2026?

Before investing in an HMO, investors should ask practical questions.

Is the location supported by real tenant demand? Does the layout work for licensing? Are the room sizes suitable? Is there enough amenity space? Has the refurbishment cost been properly assessed? Are the rent assumptions realistic? Who will manage the property? What is the track record of the developer? What happens if costs rise? Is there a clear compliance process after completion? Has the refinance position been assessed sensibly under current lending conditions?

These questions matter more than a headline yield.

A responsible investor should also review ownership, management, licensing, refurbishment structure, valuation assumptions and risk before proceeding. We have created a dedicated due diligence resource for investors who want to understand these points in more depth: HMO and Care Property Investment Explained: Ownership, Leases, Management and Risk.

Are HMOs still suitable for passive investors?

HMOs can be suitable for passive investors, but only when the investment is structured correctly.

A passive investor should not be expected to manage tenants, chase arrears, organise compliance, coordinate maintenance, handle licensing issues or understand every local authority requirement themselves. That is where a proper end-to-end partner becomes important.

Our HMO investment model is designed for investors who want exposure to the HMO sector without taking on the day-to-day operational burden. We handle the process from acquisition through to refurbishment and ongoing management, using our in-house experience to keep the investment as hands-free as possible.

That does not mean the investor should be passive during due diligence. They should still understand what they are buying, how the numbers work, what the risks are, and why the chosen location and property make sense.

Why our investors are still investing

Our investors continue to invest because the fundamentals still make sense when the property is done properly.

They understand that the rental market has changed, but they also understand that demand for quality affordable housing has not disappeared. They understand that regulation is tighter, but they see that as a reason to work with an experienced operator rather than avoid the sector completely. They understand that refurbishment costs can move quickly, but they value a price lock promise that gives greater certainty from the start.

They are also realistic about today’s refinancing environment. Mortgage and refinance rates are high, and we are paying those same rates ourselves. This is a shared market condition, not something that only affects new investors. But our view is that the correct response is not to abandon the sector, it is to assess each investment properly, avoid over-leverage, use realistic figures and keep a long-term view.

Most importantly, our investors understand that HMOs are not just about buying a house and adding bedrooms. The best results usually come from proper acquisition, careful design, full compliance, strong refurbishment, realistic numbers, sensible finance planning and professional management.

That is the standard we work to.

So, are HMOs still a good investment in 2026?

HMOs can still be a strong investment in 2026, but they are no longer a simple investment.

The days of casual landlords, weak conversions and poor management being able to operate easily are becoming harder. In our view, that is a positive development. It raises the bar, protects tenants and rewards experienced operators who take compliance, quality and long-term management seriously.

We are still investing because we believe in the long-term picture for HMO investment. We believe high-quality, affordable housing will remain in demand. We believe tighter regulation will continue to separate proper operators from poor ones. We believe investors still have strong opportunities when they work with experienced teams who understand the full process.

We are also realistic about the short-term pain that higher borrowing costs can create. Refinance rates are high, and investors need to assess that carefully. But property investment should not be judged only by today’s rate environment. A well-built HMO, in the right location, with realistic rents, professional management and a long-term plan, can still offer a compelling investment case over the full cycle.

For investors looking at HMOs in 2026, the question should not simply be, “Are HMOs still good?”

A better question is, “Who is developing it, who is managing it, how have the numbers been assessed, how has the refinance position been reviewed, and has the risk been properly understood?”

That is where experience matters.

To view current HMO investment opportunities, visit our HMO properties for sale page: www.footforwardproperties.co.uk/hmo-for-sale

For a deeper breakdown of ownership, management, leases and investor risk, visit our HMO investor due diligence hub.

FAQs

Are HMOs still profitable in 2026?

HMOs can still be profitable in 2026 when they are bought in the right location, refurbished correctly, licensed properly and managed by an experienced operator. Investors should focus on realistic net income, not inflated rent assumptions or headline yields that ignore costs, compliance, finance, void risk and management.

Has the Renters’ Rights Act made HMOs less attractive?

The Renters’ Rights Act has changed the private rented sector, especially around possession and tenancy management. For professional HMO operators who already focus on tenant retention, fair management and compliance, the change is manageable. For landlords who relied on weak management practices, the sector is now more difficult.

Why does regulation help experienced HMO operators?

Regulation helps raise standards. It makes it harder for rogue landlords, poor developers and inexperienced managers to operate below acceptable standards. For investors, this means the choice of developer and management company is more important than ever.

Are high refinancing rates a reason to avoid HMOs?

High refinancing rates are a reason to assess HMOs more carefully, not automatically a reason to avoid them. Investors should stress-test the numbers, avoid over-leverage, understand the refinance position and take appropriate mortgage advice. We are paying the same refinancing rates as our investors, so we understand the pressure, but we still believe HMOs should be assessed through a long-term investment lens rather than a short-term rate environment alone.

Will mortgage rates stay high forever?

Nobody should make a property investment decision based on a guaranteed prediction about interest rates. Rates move in cycles, and lending conditions can change over time. Our view is that today’s higher-rate environment should be taken seriously, but it should not automatically be treated as the permanent new norm. Investors should make sure the investment works under current conditions, while also understanding the longer-term potential of the asset.

What is the biggest risk with HMO investment?

One of the biggest risks is poor due diligence before purchase. A property may look attractive on paper but fail when refurbishment costs, licensing requirements, local demand, finance, management standards and realistic rents are properly assessed.

Why does Foot Forward still invest in HMOs?

We still invest in HMOs because we take a long-term view. We believe high-quality, affordable shared accommodation will continue to be needed, especially as rental affordability remains under pressure. With over 34 years of property experience and more than 450 completed properties, we continue to see strong opportunities when HMOs are developed and managed correctly.

Is this article financial advice?

No. This article is for general educational purposes only. Investors should carry out their own due diligence and take appropriate legal, tax, mortgage and financial advice before purchasing any property investment.