Landlords have it easy, right? Buy a house, rent it out to someone, collect the money and sit back on your golden throne. Well that simply isn’t true at all. And for 99% of people with rental properties, keeping a profitable rental property has become extremely difficult. Especially in the midst of an economic crisis. New research suggests that almost 50% of buy-to-let property owners are considering selling their properties due to rising costs, and over 50% of landlords increased rent on their properties in 2023 to make ends meet.
Why Have Landlords Increased Rent?
The sole purpose of renting out a property, for most people, is to create an income stream. It’s that simple. Receiving a steady stream of income from a rental property is a pretty safe and secure way of earning an income from your hard earned assets, and if you have a long term tenant, there is little risk of this income stream backfiring. When it comes to having a buy-to-let mortgage, how much you need to charge for rent and how much profit you should receive are determined by the mortgage lenders criteria. They will normally want your rent to cover at least 125% of your mortgage payments, with some lenders requiring at least 145% to serve as a buffer.
They will also apply a stress test on your mortgage payments and the rent that you receive, normally at around 5.5%. This means that they will check that your rental income will cover 125 – 145% of your monthly mortgage payment at 5.5% interest. If all these match up, then your buy-to-let property should be profitable. But, recent economic changes have meant that costs surrounding buy-to-let properties have gone up substantially for landlords, and many landlords increased rent just to cover rising costs, without making any extra profit.
Rising Buy-To-Let Mortgage Rates
The first issue pushing landlords to increase rent is rising mortgage interest rates. Since the end of 2022, mortgage rates have increased significantly due to inflation and other economic issues in the UK. Buy-to-let owners were not except from these rate increases, and many landlords saw their own mortgage payments going up by hundreds of pounds a month. This of course narrowed the profit margins and landlords were forced to increase rent charged just so that they could cover the mortgage costs alone.
Increased Energy Bills
For landlords who offer ‘all inclusive’ tenancy agreements, where the energy bills for the property and included in the rent, recent increases to gas, water, electricity and other bills have meant that they have needed to increase rent to cover these bills too. Or risk making no profit at all on their property and actually losing out on income.
As with rising mortgage interest rates, energy bill increases have meant in many cases that households have had thousands of pounds worth of bills added on top of their annual charges for electricity, water and gas. Without increasing rent, landlords would have to cover the mortgage costs of their property, the energy bills of their property, as well as taking care of their own personal [property finances which have also increased.
45% of Landlords Are Considering Selling Their Rental Properties
Property finance company Finbri have released data from research that they have recent carried out, which shows that almost 50% of current UK landlords either have done or are potentially considering selling their rental properties due to a lack of profitability. 44.66% of UK landlords have said that they are thinking of or have already cut their losses on rental properties by selling them off due to the above mentioned issues with rising mortgage costs and rising energy bills. For these landlords, raising rent simply wasn’t enough to make their properties profitable again, and unfortunately they have had to sacrifice their income stream that they have worked hard to cultivate.
What Can I Do As a Landlord?
The good news is that for most landlords, there are things that you can do to improve the situation of your investment property. In the majority of cases, as we have seen, landlords will have to increase rent. And that is quite unavoidable, especially in places where the cost of living is higher. When it comes to mortgages, if you are concerned that your mortgage payments are either too high or are likely to get too high for you with your current provider, the best thing to do is to enlist the help of a mortgage broker.
A mortgage advisor with access to the entire mortgage market can potentially help you to find a better lender with a lower rate and therefore giving you a better profit margin by switching your mortgage provider. For example, your current buy-to-let loan provider may have raised their interest rates to 5%, however a mortgage broker may be able to find you a rate of 4%, saving you a lot of money on your monthly payments.
What Can I Do As a Tennant Who Can’t Afford Rental Increases
unfortunately there will be more and more renters feeling the squeeze of landlords increasing rent as well as a general increase in the cost of living. If you are unable to afford/don’t want to have to pay more rent, you can always call our team today for a free initial mortgage consultation to explore potential home ownership options. Not every renter will be in the position to move out and buy a property themselves, but a qualified mortgage advisor will be able to help you to determine what you can and can’t do currently, and what you need to do to put yourself in the best possible position to buy in the future.
If you are a landlord concerned about rising property costs or a renter concerned about increased rent, please feel free to give our team a call today.