Rental returns eased at the end of last year, but HMOs continue to deliver the strongest performance across the private rented sector, researchers say.
The latest landlord trends study from Pegasus Insight shows that average achieved yields slipped to 6.4%, down from 6.6% in the previous quarter.
Despite the softening, 85% of landlords still described their lettings activity as profitable, which is down 4% on the third quarter.
Landlord resilience is key
The firm's founder and chief executive, Mark Long, said: "The key takeaway from Q4 is not that profitability has weakened significantly, but that it is becoming more uneven.
"Overall returns remain close to recent highs, but the margin for error is narrowing for a growing proportion of landlords."
He added: "Higher yielding, more intensively managed portfolios, particularly HMOs, continue to provide a degree of insulation, while more traditional portfolios have less flexibility as costs and complexity remain challenging.
"The risk to buy to let landlords is not a sudden deterioration in performance, but a more gradual erosion of resilience.
"In an environment where yields are no longer rising, the ability to absorb further regulatory, operational or economic pressures will increasingly depend on the strength of landlords' financial structures and the scale and mix of their property portfolios."
More landlords report losses
Pegasus also found that the proportion of landlords who are reporting losses edged higher, with a 2% quarterly increase.
That points to pressure building at the margins as borrowing, maintenance and compliance costs remain higher.
However, the best housing type are Houses in Multiple Occupation which produce average yields of 7.3%.
Those stronger returns helped counterbalance higher management need and operating expenses.
However, landlords of standard single let homes were more exposed, with fewer ways to offset rising costs.
Aldermore highlights fragile confidence
Meanwhile, Aldermore has published a survey which reveals that landlords remain profitable overall, but confidence is slipping as the Renters' Rights Act approaches.
Its research found 85% of landlords are still making money, while just 6% are operating at a loss.
Also, 75% of landlords expect the Act to affect them negatively, and 84% believe it will damage the private rented sector.
Jon Cooper, Aldermore's director of mortgages, said: "What's clear from the research is that most landlords have legitimate concerns about how the Renters' Rights Act will impact their property portfolios.
"Importantly, only 1% of landlords surveyed are unaware of the Act, with the vast majority highly aware of the potential implications.
"It's vital that all landlords assess how the Act will impact their lettings activity, to protect themselves and ensure they're able to continue offering a positive renting experience for their tenants."
Student landlords must prepare
The managing director of Accommodation for Students, Simon Thompson, said: "For student landlords, the figures from Pegasus underline why HMOs remain resilient.
"Higher yields can provide a buffer against rising costs and regulatory change, but margins are tightening."
He added: "Of all the sectors to be most affected by the Renters' Rights Act, it's student accommodation.
"That means student landlords need to carry out careful financial planning, make realistic rent assumptions and be proactive in compliance as the Act approaches."
