July 11

Shamplina’s Insights: Can Landlords Afford it?


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Just a year ago, landlords were primarily concerned about the awaited Renters (Reform) Bill. However, the recent increase of interest rates by 0.5% to 5% from the Bank of England has shifted their focus towards a more pressing question: Can I still afford to continue as a landlord?

Shamplina's Insights: Can Landlords Afford it?

Answering this question requires careful deliberation in today’s market. When considering the numerous obstacles that landlords currently face, it is understandable why many are contemplating alternative paths. Nevertheless, it is crucial to acknowledge that in England, the private rented sector serves 4.4 million households, and this number continues to rise. Therefore, there will always be a demand for landlords. The real concern lies in how long the majority can endure these challenges.


Affordability of mortgages and rent 

Renters are currently grappling with soaring rental prices, experiencing the fastest annual growth in over a decade. According to the Office for National Statistics, private rents in the UK have surged by 4.8% in the year leading up to February 2023. In a significant milestone, average asking rents in London have now exceeded £2,500 per month, further exacerbating the challenges faced by tenants in the current market.

On the other hand, landlords have witnessed a drastic increase in average fixed mortgage rates in just nine months. In a recent conversation with a landlord whose fixed-term mortgage is approaching its end, he disclosed that his previous buy-to-let mortgage payment of £350 will soon escalate to £1100. Such a substantial rise would be unaffordable for most tenants, leaving the landlord with the difficult decision of either seeking new tenants capable of meeting the higher payment or negotiating a viable solution with the current tenants.

I strongly believe that landlords should engage in open conversations with their tenants before resorting to serving a Section 21 notice based on assumptions about their inability to afford a rent increase. It’s concerning to hear from landlords who, in a state of panic, consider serving notice and selling their properties without even discussing the matter with their tenants.

It’s important to remember that tenants are feeling financial strain, whether they choose to move or stay in their current residence. Some tenants may appreciate the opportunity to negotiate a rent increase, even if it needs to be substantial, rather than going through the process of finding a new place to live, which could potentially be even more expensive. I recently addressed the issue of rising Section 21 notices on BBC Radio 4’s program ‘You and Yours’ (starting at 33 minutes and 54 seconds).

For certain landlords, having a rent that fully covers mortgage payments is the only viable option, especially if they lack the financial flexibility to supplement payments until interest rates align with inflation.

However, securing a new mortgage deal is currently more challenging for landlords, as lenders typically assess affordability based on the interest coverage ratio (ICR), often requiring rental income to exceed the mortgage payment by at least 125%, or even more for higher-rate taxpayers.



In addition to the government’s reduction of mortgage interest relief to 20%, another blow for landlords came in April when the capital gains tax-free allowance was reduced from £12,300 to £6,000. By April 2024, it will further decrease to £3,000. This change implies that landlords will face higher capital gains tax liabilities when selling their properties, a factor that those considering exiting the market must carefully consider.

I wholeheartedly stand behind landlords and industry bodies, including the National Residential Landlords Association, in their call for the reinstatement of full mortgage interest relief and the unlocking of housing benefit rates. Immediate and increased support for the rental market is essential to prevent the housing crisis from escalating further.


Fixed-term tenancies  

As we are aware, the Renters (Reform) Bill will replace fixed-term tenancies with rolling tenancies, allowing tenants to terminate their agreements with just two months’ notice. This change poses significant challenges for landlords in terms of future planning. While it may be argued that finding new tenants in the current high-demand market is not a major concern, the associated costs of securing new tenants still persist.


Property improvements

Furthermore, in addition to other challenges, the government’s proposals dictate that from April 2028 onwards, all new rentals must adhere to a minimum energy performance rating of C, an increase from the current requirement of E. For landlords with older properties, implementing the necessary improvements could prove to be costly. However, failing to meet the deadline can result in fines of up to £30,000.

I would like to emphasize the importance of considering the use of a reputable letting agent to manage your property, especially in the current climate, despite landlords facing financial difficulties. With a monthly rental income of £1,200 and a 12% fee, the agent’s service fee amounts to £144, which is also tax deductible. Most agents typically spend around 12 hours per month managing a property, equating to an hourly rate of £12. For landlords who may not be well-versed in current and upcoming legislation, this expense could be a worthwhile investment.

Undoubtedly, being a landlord in today’s landscape requires resilience, which is why we are witnessing an increase in landlords opting to sell their properties. Interestingly, in a conversation with David Coughlin from The Landlord Sales agency, he mentioned that 75% of their agreed sales involve other landlords who intend to retain the existing tenants.

Regardless of political agendas, it is undeniable that the buy-to-let market relies on private landlords. However, for the market to function effectively, The Treasury must extend the same level of support to buy-to-let as it does to mortgage borrowers. In addition, landlords require reassurance that the court system will effectively address situations involving tenants in arrears or engaging in anti-social behavior.

It is important to note that landlords do not desire to evict responsible tenants, but unfortunately, we are witnessing this trend. Good and reliable tenants are being compelled to leave their homes due to the increasingly challenging financial viability of buy-to-let for many landlords. We must shift the narrative and foster an industry that supports both tenants and landlords, ensuring that tenants have access to secure and high-quality homes provided by landlords who are motivated to remain in the market and uphold professional standards.


Read more Property Investing News HERE


Landlord affordability, Mortgage rate increases, Soaring rental prices, Tax implications for landlords

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