December 8

Landlord Alert: Brace for 80% Surge in Costs


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The Intermediary Mortgage Lenders Association is sounding an alarm for landlords, particularly those operating on a smaller scale with mortgages. According to their warning, these landlords might be confronted with a significant surge in costs, potentially reaching up to 80% over the next two years. This substantial increase is anticipated as they navigate the process of refinancing from historically low fixed rates.

This projection raises concerns for many small-scale landlords, who could find themselves struggling to break even in the coming two years. The looming cost of borrowing, expected to skyrocket, adds a layer of complexity to their financial landscape, emphasizing the potential challenges they may face in maintaining profitability amid changing market conditions.

In today’s property landscape, recent research sheds light on the intricate financial dynamics faced by landlords. The findings indicate a nuanced picture, with the median annual rental income currently standing at £14,000. However, the scenario becomes more intricate as the median average annual profit falls below £9,000. This challenges the common perception of landlords enjoying substantial financial gains, revealing a more modest reality.

Contrary to widespread belief, the study underscores that most landlords operate within tight financial margins, lacking significant resources beyond their rental business. On average, landlords’ non-rental income closely mirrors that of their tenants, signaling a financial balance that extends beyond mere property ownership. This financial parity becomes particularly apparent in regions outside London, where tenants and landlords share similar income profiles. Moreover, the research projects an average increase of £7,700 in annual interest payments for landlords by the year 2025, adding a layer of financial complexity to their operations.

Recent research unveils a nuanced landscape in the landlord sector, indicating that a substantial 80% of landlords possess one or two properties, collectively constituting 61% of the private rented stock. In contrast, 13% fall into the category of portfolio landlords, owning four or more properties, contributing to 39% of the rental market. Despite an uptick in landlords adopting corporate structures post the 2017 removal of tax deductions for interest rates, a mere 10% of rented properties are held within limited companies, with the majority, 90%, still held in personal names. Institutional investors account for a modest 3% share in the UK private rental sector.

Notably, changes in tax and legislation have reverberated through the landlord landscape, particularly affecting small businesses. While only 36% of respondents perceive increased tax burdens following the removal of the mortgage interest deduction, a deeper analysis by IMLA based on income data suggests a significant 58% will, in fact, experience elevated tax payments. This discrepancy highlights the broader impact of regulatory changes on the financial viability of small-scale landlords.

Concerns over increased regulations are voiced by 64% of respondents, a figure escalating to 73% among portfolio landlords. The potential ramifications of a mandatory rent freeze are underscored as 7% indicate they might be compelled to sell property or exit the market in response to such a measure.

Despite grappling with formidable challenges, the silver lining emerges as the majority of landlords express unwavering commitment to the Private Rental Sector (PRS) for the foreseeable future. Projections by the Intermediary Mortgage Lenders Association (IMLA) reveal that 53% of mortgaged landlords are poised to expand their property portfolios over the next five years, paralleled by 25% of unmortgaged investors. In contrast, only 21% and 17%, respectively, contemplate selling property within that timeframe. These insights shed light on the resilience and forward-looking stance of landlords in navigating the evolving landscape of the rental market.

Kate Davies, executive director of IMLA, comments: “The PRS plays a vital role in the UK’s housing landscape, providing homes to 20% of households. While a great deal of attention is, quite rightly, paid to the difficulties faced by tenants, there has been surprisingly little understanding of landlord finances and the strains on these, until now.

“Our research shows that many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs. Sadly, reality dictates that many mortgaged landlords will have no choice but to increase rents in order to keep their businesses viable, while debt-free landlords may well do the same in order to make an adequate return, even if that is lower than current returns available elsewhere.

“There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved. Landlords’ tenacity is to be commended – it is a great relief that so many plan to stay in the sector and increase supply when they can. Policymakers should beware adopting any policies which could upset what is already a delicate balance, and ensure they do nothing further to deter the small businesses which form the backbone of the PRS from continuing to invest.”


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Interest Rates UK, Intermediary Mortgage Lenders Association, Landlord Alert: Brace for 80% Surge in Costs, Sentiment Survery

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