For years we’ve tracked what it costs to live in the UK’s cities. For a property investor, the more useful question is what it costs to buy and let one, and whether the rent stacks up against the price you pay.
Nowhere is that question sharper than with houses in multiple occupation. An HMO lets several rooms in one property, so the income is built from room rents rather than a single tenancy. The gap between what a house costs to buy and what its rooms bring in each month is what drives the return, and that gap varies enormously by city.
This is a comparison of the UK’s established HMO markets: purchase prices, room rents, gross yields, and the licensing and planning rules that decide whether a property works as an HMO at all. It matters for financing, because HMO mortgages are assessed on exactly these numbers. We refresh the figures each year.
What It Costs to Buy and Let by City
Average HMO gross yields across the UK sit at around 8.4% in 2026, against 5% to 6% for a standard single let. That average hides a wide spread, and the spread is where the decisions get made.
| City | Avg property price | Avg room rent (pcm) | Gross HMO yield | Article 4 | Licensing |
|---|---|---|---|---|---|
| Liverpool | £189,000 | £555 | 8–11% | Some areas | Mandatory + additional |
| Manchester | £255,000 | £691 | 8–10% | City-wide | Mandatory + selective |
| Leeds | £249,000 | £565 | 8–15% | Some areas | Mandatory + additional |
| Sheffield | Below UK average | £521 | 8–11% | Some areas | Mandatory only |
| Nottingham | £283,000 | £589 | 8–11% | City-wide | Mandatory + additional + selective |
| Birmingham | £241,000 | £618 | 7.5–10% | City-wide | Mandatory + additional |
| Leicester | Below UK average | £566 | 8–11% | Some areas | Mandatory + additional |
| Newcastle | £202,000 | £605 | 8–11% | Some areas | Mandatory + selective |
| Cardiff | £273,000 | £666 | ~9% | Welsh planning rules | Rent Smart Wales |
| Bristol | Higher than northern cities | £737 | 7–9% | Some areas | Additional + selective |
“Some areas” means Article 4 applies in parts of the city. “City-wide” means it covers the whole council area. Room rents are from SpareRoom (January 2026). Prices and yields are compiled from market data. Article 4 and licensing designations are set locally and change often, so treat the table as a starting point and check the council’s own records before you commit. Last refreshed for 2026.
Two patterns stand out. The northern and Midlands cities lead on yield because entry prices are low while room rents have held up. Liverpool, Sheffield and Newcastle buy in cheap and let by the room, which pushes the yield well past what a single let returns. The southern markets work the other way. Bristol has the highest room rents in the table at £737, but its purchase prices are high enough to pull the yield down to 7% to 9%. That’s the trade. Northern cities pay you in income, southern cities lean more on capital growth.
Nottingham is the outlier on regulation. Article 4 has covered the whole city since 2012, so planning permission is needed for any new HMO conversion and it is rarely granted. That tight supply is the reason an established, licensed Nottingham HMO carries a purchase premium of over 45% above the local average house price. Restriction protects the value of what’s already there.
What the City Numbers Mean for Financing
Every column in that table feeds directly into whether a lender will fund the purchase, and for how much.
The yield drives the affordability test. HMO lending isn’t assessed on your salary, it’s assessed on the rent the rooms produce. A higher-yielding property in Liverpool or Sheffield clears the lender’s stress test with more room to spare than a lower-yielding one in Bristol, which can mean a larger loan against the same deposit.
The price drives the deposit. HMO mortgages usually cap at 75% loan to value, so a £255,000 Manchester house needs around £63,750 down before fees, while a sub-£190,000 Liverpool property needs far less. Lower purchase prices don’t just lift the yield, they lower the cash you need to get in.
The licensing and Article 4 columns drive lender appetite and your exit. A property that already holds the right licence and has clear lawful use is straightforward to fund. One in an Article 4 area with no proof of established HMO use is a different proposition, because the lender is thinking about who buys it from you later and whether it can be refinanced at all.
How Lenders Assess HMO Viability by City
When you apply for an HMO mortgage, the lender works through a fairly consistent set of questions. The answers change city by city, which is why location does so much of the heavy lifting in these applications.
- Room-by-room rental income – the lender values the rent each room achieves, cross-checked by their surveyor against local comparables. Inflated assumptions get restated downwards at valuation, so the achievable room rent in that specific area is what counts, not the brochure figure.
- The stress test – projected rent has to cover the mortgage interest by a set margin, the interest coverage ratio, usually between 125% and 145% depending on your tax position and structure. Lenders apply a stressed rate, commonly 5.5% to 7% on HMO products, to check the loan still works if rates rise. Higher-yielding cities pass this more comfortably.
- Loan to value and deposit – most lenders cap at 75%, so a 25% deposit is the norm. A few specialists stretch further at higher rates, and dropping to 65% LTV tends to bring the sharpest pricing.
- Landlord experience – many mainstream HMO lenders want 12 to 24 months of buy-to-let ownership behind you. Some specialists will consider a first-time landlord with a strong deposit and a credible plan.
- Licensing in place – the property must hold, or clearly qualify for, the licence its council requires. Where a licence is still pending, some lenders won’t proceed, and council timelines vary widely. A bridging loan is sometimes used to hold a purchase together while licensing is resolved, then repaid on refinance.
- Article 4 and lawful use – in Article 4 areas the lender will want proof of established HMO use, often a lawful development certificate. Without it, the pool of future buyers narrows and refinancing becomes harder, so the exit has to be thought through before you buy, not after.
For larger HMOs, typically seven bedrooms or more, or those classed as sui generis, many lenders move the application onto commercial terms. These are underwritten more like a commercial mortgage, weighing the property as an income-producing business rather than a scaled-up buy to let. The same applies to HMOs above shops or other mixed-use buildings.
Before you make an offer, it’s worth modelling the borrowing against the actual room rents for the postcode. Our HMO mortgage calculator gives you a quick view of the monthly cost, and our team can tell you which lenders fit a given city and property type before you apply anywhere.
The 2026 Rules Every HMO Buyer Should Price In
Two regulatory changes affect the numbers this year, and both belong in your budget rather than as an afterthought.
The Renters’ Rights Act received Royal Assent in October 2025, with the main provisions in force from 1 May 2026. Section 21 “no fault” evictions are gone, replaced by Section 8 with specific grounds. Fixed-term tenancies are abolished and all tenancies become rolling periodic agreements, which matters for student HMOs that ran on academic-year contracts. A new possession ground, Ground 4A, lets landlords recover a student HMO between June and September for re-letting, with four months’ notice, where the property is let only to full-time students.
Separately, the government confirmed in January 2026 that rental properties must reach EPC rating C by 1 October 2030, up from the current E. Many of the older terraces that convert well into HMOs sit at D or E today, and lifting one to a C can cost several thousand pounds. A £120,000 house that needs £12,000 of energy work is really a £132,000 investment, and that changes the yield. Factor it into the purchase, not the year before the deadline.
Where to Start
The city you choose sets the yield, the deposit and the lender’s appetite before you’ve even found a property. Get those three lined up first, and the financing follows.
If you’re weighing up an HMO purchase in any of these cities and want to know what you can borrow and which lenders will back it, speak to our team. We arrange HMO mortgages, commercial mortgages and bridging finance across the whole market, and we’ll run the numbers with you before you commit to a city or a site.
About the author
Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business publications as well as local and national press.
