Landlords are navigating a changing market, with rising rental yields tempered by growing concern over the Renters' Rights Act.
Aldermore research found that 84% of landlords still see their lettings business as profitable, although concern is growing about how new legislation could affect future performance.
Average yields are now 6.5%, the joint second-highest quarterly figure recorded in the past five years.
Landlords without borrowing seem more resilient, with 90% reporting profits compared with 77% of those with finance.
Those with larger portfolios also appear more financially resilient than smaller landlords.
Reasons to be cheerful
Jon Cooper, the lender's director of mortgages, said: "If you're a landlord or a broker, there are reasons to be hopeful here.
"Five out of every six landlords (84%) report their lettings activity being profitable.
"Unencumbered landlords are, unsurprisingly, likelier to report a profit than those who borrow (90% vs. 77%), and larger portfolio landlords are also more likely to report higher levels of profit."
He added: "The average achieved yield is 6.5%, up slightly since last quarter.
"Encouragingly, this is the joint second highest quarterly yield within the last five years."
Falling tenant demand
However, Aldermore found that tenant demand has been declining steadily.
Just 58% of landlords said demand was strong in the first quarter of 2026, down from 83% in early 2024 and continuing a quarter-by-quarter decline.
As a result, confidence in the lettings market has dropped to its lowest level since mid-2023.
Legislative changes are driving this apprehension and only 8% of landlords believe the RRA will positively impact their portfolios, while 70% anticipate a negative outcome.
Court backlog fears
Also, 90% of those surveyed expressed concern regarding the potential for backlogs within the court system when attempting to evict tenants.
Mr Cooper is also suggesting that professional landlords are adapting more effectively to these market pressures than part-time investors.
He explains: "Generally speaking, we're seeing that the more professional and sophisticated landlords are navigating the changing market with greater confidence, whereas part-time landlords with smaller portfolios can struggle to adapt."
Investment strategies changing
Another BTL lender has also highlighted the evolving tactics of landlords post-RRA.
Alex Upton, the managing director of specialist mortgages and bridging finance at Hampshire Trust Bank, said: "Landlord strategy is continuing to change.
"We're having far fewer conversations about expansion for the sake of growth, particularly as the Renters' Rights Act starts feeding into longer-term investment decisions."
He added: "Investors are looking much more closely at which properties still work financially, where income is more resilient and how portfolios need to evolve over the next few years."
Student landlords encouraged
Simon Thompson, the managing director of Accommodation for Students, said: "While rental yields offer financial encouragement for student landlords, the Renters' Rights Act creates significant apprehension regarding future portfolio performance.
"Professional landlords are navigating these regulatory shifts more effectively than those holding smaller assets."
He added: "There's no doubt that heightened scrutiny of income resilience is now guiding strategic decision-making for landlords instead of simple expansion.
"It's always worth seeking expert guidance from brokers for maintaining long-term stability amid evolving market conditions."
