85% of landlords say they profit, but only 17% see strong returns as London costs tighten the margin

85% of landlords say they are making a profit, but only 17% describe those returns as significant. That is the key finding in Moda Mortgages’ summary of Pegasus Insight’s Q3 Landlord Trends report. Another 11% say they are breaking even and 4% report losses. For London landlords, the real takeaway is not that profitability has survived, but that the margin for error is getting thinner.

Gross yield is not the figure that decides resilience

The report says average gross rental yield is unchanged at 6.4%. That is a useful comparison metric, but it says little about whether a property still works once mortgage interest, service charges, insurance, management fees, licensing costs and repairs are stripped out.

That matters more in London than in many regional markets. A property can post an acceptable headline yield and still produce weak net cashflow once block charges, compliance spending and refinancing costs are added back in.

The sharpest divide is borrowing

The clearest split in the data is between mortgage-free landlords and those with buy-to-let debt. 93% of landlords who own outright report profitability, compared with 79% of those with borrowing.

That does not prove leveraged buy-to-let no longer works. It shows that borrowing costs now have much more influence over day-to-day performance. If a fixed rate ends in the next 6 to 12 months, landlords should model each property at the lender’s reversion rate and against current remortgage options before expiry, not after.

Operating costs matter more than the headline profit figure

Moda Mortgages cites estimated average annual operating costs of £17,665 for non-HMO portfolios and £28,168 for HMO portfolios. Those are not London-specific figures, and the source does not provide borough-level breakdowns, so they should be used as broad benchmarks rather than local assumptions.

Even so, they are more useful than the profitability headline because they show how quickly costs can erode returns. In London, that pressure is often amplified by higher contractor charges, larger service charges, licensing fees and longer compliance lists for shared housing.

Repairs are the biggest cost line

Repairs and maintenance account for the largest share of operating costs in both categories: 39% of non-HMO costs and 27% of HMO costs.

That makes maintenance the cost line landlords should examine first. Delaying necessary works may protect this month’s cash position, but it often produces larger bills later, especially where emergency call-outs, tenant disruption or managing agent fees are involved. In HMOs, unresolved issues in common parts can also create licensing and safety problems.

HMOs carry higher exposure on several fronts

The gap between £17,665 and £28,168 underlines how much more management-intensive HMOs can be. Higher turnover, heavier wear and tear, fire safety servicing and stricter licensing conditions all raise the operational burden.

In London boroughs with additional or selective licensing, missed licence conditions or renewal dates can quickly turn a decent gross yield into a weak net return. Landlords should check local rules directly with the relevant borough because scheme coverage, fees and deadlines vary by address and property type.

This is not a legal update, but tighter margins make compliance failures costlier

The report does not create new statutory obligations. Existing requirements still apply, including gas safety, EICRs where required, smoke and carbon monoxide alarms, deposit protection, prescribed documents, licensing rules and minimum energy efficiency compliance.

The problem is not a sudden change in the law. It is that thinner surplus cash makes ordinary compliance failures more expensive. A missed HMO renewal, an invalid possession process or an uninsured escape-of-water claim is harder to absorb when profits are already under pressure.

Portfolio averages can conceal weak assets

One of the risks in survey data like this is that portfolio-level profitability can hide underperforming properties. A landlord may still describe the overall portfolio as profitable while one flat is being dragged down by a large service charge, a poor refinance outcome or repeated repairs.

That is why London investors should review performance property by property. The right question is not whether landlords in general remain profitable. It is whether each asset still justifies the capital, debt and management time tied up in it.

Three checks landlords should make now

1. Rebuild cashflow for each property. Use actual rent collected, current borrowing costs, service charges, insurance, management fees, licence fees and a realistic maintenance allowance.

2. Review every mortgage expiry date. If a rate ends within the next 12 months, compare the cost of refinancing with the cost of doing nothing and rolling onto the lender’s standard variable rate.

3. Audit compliance before the next renewal or reletting. Check gas, electrics, EPC status, deposit protection and licensing position, and log renewal dates in one place.

Rentals and Sales can help London landlords review property-level cashflow against refinancing, service charge and licensing risk before the next mortgage expiry or rent decision.

This article is for general information only and is not legal, tax or regulated mortgage advice.