UK landlords are facing a structural rise in operating expenses, with new Pegasus Insight data showing that essential maintenance, servicing, utilities and compliance now consume a significantly larger slice of rental income. The shift comes as investors continue to battle higher borrowing costs and more complex regulatory demands.
The research indicates landlords spend 25% to 45% of gross rental income on running costs depending on property type. Maintenance and repairs dominate outgoings, accounting for 31% to 39% of expenditure, a trend supported by ONS repair cost indices that point to steady inflation in construction labour and materials.
With the average buy-to-let portfolio generating £79,000 a year in gross rent, operating outlays now total £19,604 for single-lets and £35,720 for HMOs. For many landlords, this means yields look strong on paper, yet rising day-to-day costs are eroding net returns faster than expected.
HMOs hit hardest as utility bills outstrip other costs
The starkest divergence in the data lies between HMO and non-HMO portfolios. Pegasus found HMO landlords spend four times more on utilities than their single-let counterparts, at 16% of gross income versus just 4%.
Because bills are often included in the rent for shared homes, landlords have absorbed most of the energy volatility seen between 2022 and 2024. Although Ofgem reports moderating wholesale prices, the impact is still filtering through slowly, leaving many HMO operators with thinner margins than before.
Mark Long, founder of Pegasus Insight, says landlords are experiencing a true cost reset:
“What we’re seeing now is a step-change. Even with yields at multi-year highs, a growing share of rental income is being absorbed by day-to-day running costs and compliance demands.”
For investors with older or more complex portfolios, the core challenge is no longer achieving income – it’s preserving margins in the face of persistent cost escalation.
Will rising upkeep costs reshape landlord strategy in 2026?
The cumulative effect of higher repairs, utilities and compliance costs is prompting many landlords to rethink how they manage their portfolios.
ONS data shows landlord business registrations dipped slightly last year, hinting at consolidation. Meanwhile, several landlord groups, including the NRLA, have warned that licensing fees and safety upgrades are becoming “incremental pressures that add up fast”.
With compliance demands stacking up, tools like AskLettie are becoming essential armour for landlords. By streamlining repair reporting through WhatsApp and generating automatic audit trails, the platform helps landlords demonstrate due diligence, cut admin time and shield themselves from unfair enforcement or tenant-led disputes. It’s a practical way to stay compliant without drowning in bureaucracy.
Long notes that increases in upkeep are unlikely to fade quickly:
“… The risk is that sustained rises in upkeep costs ultimately feed through into higher rents, as landlords look for ways to fund the ongoing investment required to keep properties in good condition.”
Although rent inflation is not the headline here, the possibility of cost-driven rent adjustments lingers in the background. For now, the more immediate concern for landlords is budgeting accurately and prioritising upgrades that reduce long-term overheads.
Rising running costs rarely draw headlines, yet they shape the real economics of the private rented sector. As maintenance inflation, utilities and compliance tighten their grip, landlords with older stock face difficult choices: upgrade, restructure or exit. With policy reform still in flux and margins under strain, 2026 may be the year when operational efficiency becomes as important as yield itself.
