HMO landlords are committing to a level of capital expenditure that turns the asset class into an active management business. Paragon Bank survey data published in October 2026 shows 28% of HMO landlords plan to spend over £10,000 on property upgrades in the next 12 months, with a further 15% budgeting between £5,001 and £10,000. The bank recorded average HMO yields of 8.9% in Q2 2026, the highest of any property type it finances. The premium comes with a standing improvement obligation that reshapes viability calculations for landlords, advisers and lenders.
A permanent capital cycle
Three-quarters of the landlords Paragon surveyed have been letting for at least a decade, suggesting the spending pattern reflects experience rather than naivety. The bank provided no sample size, methodology or geographic breakdown, so the findings likely reflect its existing customer base: professional operators with larger portfolios and access to specialist finance. That skew makes the capex data more, not less, significant. If experienced landlords with established cashflow are budgeting £5,000 to £10,000-plus annually, the cost structure is embedded in the asset class.
Louisa Sedgwick, managing director of mortgages at Paragon Bank, said the level of planned expenditure 'suggests that many are focused on maintaining quality, supporting compliance and ensuring their properties remain well positioned over the long term'. The survey did not isolate regulatory from discretionary investment, but fire safety upgrades—alarms, doors—and energy efficiency measures were named. That points to HMO licensing proliferation, anticipated local authority enforcement, and lender covenant requirements as probable drivers.
Awaab's Law, which imposes repair and hazard-response timeframes on social landlords from 2023 and is widely expected to influence private rental enforcement, adds further pressure. EPC minimum standards currently sit at E, with a potential C requirement still under debate. Both create capex exposure that landlords appear to be pricing in ahead of formal obligation.
Yield versus capex in underwriting
The 8.9% yield figure lacks context. Paragon has not stated the time horizon over which it holds the record, nor provided comparison to other lenders' data. It is unclear whether the yield calculation includes improvement amortisation, and no detail is given on void rates, management fees or tenant churn within the HMO book. What the data does confirm is that HMO landlords expect higher income, and accept higher capital and operational cost, than single-let buy-to-let operators.
For portfolio landlords considering HMO conversion, the calculation has shifted. An 8.9% gross yield against £10,000 annual improvement spend on a property valued at £250,000 delivering £22,250 in rent leaves £12,250 before mortgage, management, licensing, utilities and compliance costs. That is a fundamentally different proposition to passive single-let income, and it requires reserve planning, contractor relationships and compliance tracking capability.
Agents advising HMO investors need to factor the improvement cycle into viability models from the outset. Lenders underwriting HMO mortgages should stress-test affordability against sustained capex, not treat refurbishment as a one-off event. Accountants preparing portfolio cashflow forecasts need a standing improvement reserve line.
Compliance and contractor markets
Eighty per cent of surveyed HMO landlords intend to expand or maintain portfolios during the next 12 months, despite the cost base. That signals confidence in sustained tenant demand and rent growth sufficient to absorb compliance spend. It also quantifies an addressable market for fire safety installers, energy assessors, refurbishment contractors, and proptech vendors offering licensing, compliance tracking or tenant management tools.
The commercial read for vendors is straightforward: budget allocation is happening, and it is recurring. The question is whether the spend is discretionary or distressed. Landlords investing to maintain quality and retain tenants will pay for integrated compliance and efficiency solutions. Landlords forced to upgrade by enforcement notices or lender conditions are price-sensitive and likely to churn once the immediate obligation is met.
The survey offers no counterview from landlords exiting HMO due to cost or complexity, and no data on how previous years' spending plans translated to actual expenditure. That omission matters. If capex intentions are consistently higher than delivery, the market signal weakens. If exits are concentrated among smaller or newer operators, the professionalisation trend accelerates and vendor sales cycles lengthen.