"Despite economic and regulatory uncertainty, opportunities remain strong for adaptable investors"
- Azfar Rizvi - Aldermore
The Private Rental Sector (PRS) has been through a decade of intense change - from tax reforms and rising interest rates to the introduction of the new Renters’ Rights Act. Our latest research shows that the PRS remains a resilient and profitable investment opportunity, particularly for residential landlords who continue to adapt to a shifting landscape.
While these pressures are felt most acutely by smaller or mid-sized residential investors, the broader Commercial Real Estate (CRE) sector is also undergoing significant adjustment. However, the motivations and strategies of CRE investors differ from those of smaller or mid-sized residential investors.
Both groups face higher financing costs, regulatory reform and evolving tenant expectations, but they vary in scale, asset types and investment horizons. Opportunities still remain for both.
CRE investors seeing strong yields despite market uncertainty
Aldermore’s latest analysis of Pegasus Insight research shows continued strong performance in the PRS, with nearly nine in 10 (89%) of landlords reporting profit from their lettings - the highest level since 2019. Meanwhile, landlords are enjoying average yields of 6.6% - the strongest in a decade, with the North West (7.4%) and Yorkshire & Humber (7.2%) leading with the highest regional returns.
Strong yields are also being recorded in Wales (6.9%), central London (6.5%) as well as the East Midlands, South East, South West and West Midlands (6.4% respectively). The North East (6.3%) and the East of England (6.1%) also deliver yields above six percentage points.
Meanwhile, outer London continues to lag slightly behind at 5.9%. While these figures represent market averages, individual outcomes will still depend on financing costs, refurbishment needs, tenant turnover and periods of vacancy.
Balancing regulatory concerns with adaptation and opportunity
Many landlords are understandably cautious about the impact of regulation. Nearly three in four (73%) believe the Renters’ Rights Act will negatively affect their lettings, and 92% are concerned about potential new taxes on rental income.
While these concerns are real, we are seeing many landlords - particularly small and mid‑sized portfolio owners, and increasingly large and institutional investors - respond constructively. Clients are refinancing to secure more stable repayment profiles, upgrading older stock, and improving EPC ratings to future‑proof their assets and enhance tenant demand. These are exactly the kinds of practical steps that can turn regulatory pressure into long‑term resilience.
At Aldermore, we’re supporting this transition by providing funding for refurbishment, energy efficiency improvements, and portfolio reshaping. Stronger compliance and improved property quality also create opportunities for longer tenancies, reduced voids, and more predictable returns.
The changing demand for rental homes
The Renters’ Rights Act has introduced important protections and incentives that can improve standards in the PRS, but it is still raising some concerns for private clients. By prioritising compliance, quality, and transparency, CRE investors will be best placed to benefit from a more accountable rental market.
In turn, this can strengthen trust between landlords and tenants, support longer tenancies, reduce void periods, and ultimately deliver more stable, predictable returns. These upsides are also helpful for lenders, making properties more attractive collateral and supporting the case for providing financing.
The outlook for the residential investment market
Looking ahead, the fundamentals of the UK residential market remain supportive of long-term investment. Demand for rental homes continues to outstrip supply across much of the country, driven by affordability pressures in the owner-occupier market, population growth in key urban centres, and a persistent undersupply of new housing.
While rental inflation has moderated from recent highs, rents are expected to continue rising at a steady pace, particularly across regions such as the North West, Yorkshire & Humber, the Midlands and parts of the South West, where affordability remains relatively strong and employment growth continues to support demand.
In London and the South East, growth is likely to be more nuanced, but well-located, high-quality and energy-efficient properties should continue to command a premium. This rental growth is also likely to support property value appreciation over time, strengthening long-term capital return for investors.
Build to Rent and mixed-use opportunities
One of the most promising areas of growth is Build to Rent (BTR). The model is playing an increasingly central role in the UK housing market, offering a modern approach that prioritises flexibility, community, and high-quality living standards. Beyond residential, BTR is influencing wider commercial strategies, with mixed-use developments combining retail, leisure, and residential spaces becoming highly attractive to institutional and private investors alike.
That said, a substantial proportion of the PRS remains with smaller and mid‑sized landlords, who continue to see strong opportunities outside the institutional BTR space - particularly by upgrading existing stock, adding units to portfolios, or exploring mixed‑use assets with stable residential demand.
Assets with strong sustainability credentials are also rising up the agenda. Properties with higher energy performance ratings are increasingly seen as more desirable by tenants and investors, reflecting both lower running costs and reduced exposure to future regulatory change. Alongside this, smart home technology and flexible commercial space are becoming key differentiators that enhance occupier satisfaction and long-term asset value.
The most impactful sustainability actions for residential landlords remain practical and asset‑specific, including targeted refurbishment of older units, EPC uplift projects (e.g., insulation, windows, heating systems) and installing smart metering or energy‑efficient appliances.
Aldermore’s role in supporting investors
Despite economic and regulatory uncertainty, opportunities remain strong for adaptable investors. With interest rates showing signs of easing and confidence gradually improving, landlords who invest in quality, compliance and sustainability are well positioned to thrive.
At Aldermore, we remain committed to supporting both CRE investors and residential landlords, and we continue to see strong demand from professional private clients and institutional investors seeking funding to upgrade or expand their portfolios. This includes refurbishing older stock, improving energy efficiency, or refinancing away from other lenders to support their business goals.
While regulatory change and economic uncertainty bring challenges, they also present opportunities. Stronger standards can help rebuild trust in the sector, support longer and more stable tenancies, and drive demand for sustainable, future-proofed assets.
With interest rates beginning to ease and confidence gradually returning, investors who adapt, evolve, and find opportunity amid change will continue to thrive. At Aldermore, we will continue to provide flexible finance and expert insight to help them navigate this landscape with confidence.
