Landlord’s Dilemma at The Rising Cost of Living

Landlord’s Dilemma at The Rising Cost of Living

September 28, 2022

New research highlights landlords’ dilemma 

Some landlords are facing a real dilemma at the moment in dealing with the continued rising cost of living. There is a need to ensure they can cover the increasing costs associated with their properties and ensure they are following the market. 

New research has highlighted rising cost of living costs and interest rates are causing concern among landlords, as they face a decision: do they raise rents or support their tenants, which would have a financial impact on their own rental incomes?[1].

Under pressure 

Around three quarters (74%) of landlords say they feel a responsibility to support their tenants during times of financial hardship and, with the cost of living continuing to rise, more than four in ten (44%) have financially supported their tenants during the last 12 months, such as reducing or pausing rent. 

The research shows that landlords could cope with reducing their rents by an average of 7.6% before coming under pressure equating to around £50 per property a month based on a typical landlord’s rental income[2].

Financial challenges

While many are able to reduce rent, close to half (45%) of all landlords say any reduction would harm them financially. Around four in ten (38%) said they intend to keep rents the same for the next year despite the financial challenges, while more than half (55%) say they need to increase rents over the next 12 months. One in four (25%) plan to raise the rent on all their properties.

Landlords with larger portfolios are more likely to increase rent on at least some of their properties, the poll highlights. Three quarters (75%) of those who own more than ten properties aim to increase their rents over the next 12 months, compared to just 44% of landlords owning between one and three properties. 

Rental properties 

In fact, 46% of those landlords with a small portfolio plan to keep rents the same. Across the regions, landlords in Yorkshire and The Humber (68%), Outer London (65%), the North West (63%) and Wales (63%) are most likely to increase rents on some or all of their properties over the next 12 months.

Those landlords using their rental properties to offset their mortgages are also more likely to raise rents, with nearly two-thirds (63%) planning an increase compared to just 44% of unleveraged landlords.

Retired people

Despite the plan to increase rents, well over half (57%) of landlords are concerned about whether their tenants can maintain their rental payments, with more than one in ten (13%) admitting they are very concerned. This increases to nearly three quarters (74%) of landlords who let to claimants of Local Housing Allowance and 71% of landlords who let to retired people.

Regionally, landlords in East Midlands (74%), Wales (70%) and Yorkshire and The Humber (62%) appear to be most concerned about the ability of their tenants to pay the monthly rent. However, perhaps unsurprisingly, only around a third (32%) of landlords in Central London are worried about receiving their rent.

Reduce rents 

In terms of the support offered to tenants by 44% of landlords, temporary rent reductions and rental payment holidays are the most common options. Support provided includes: temporary rent reduction (22%), rental payment holiday (15%) and permanent rent reduction (4%).

Landlords with smaller portfolios are able to reduce rents by a slightly higher amount. Compared to the average of 7.6% for all landlord types, those with one property can reduce by an average of 8.7%, while those with two or three properties are able to reduce rents by 9.3%. 

Lettings activity 

Of those who could reduce rents, nearly half (47%) of them say they could sustain it for six months or more, while 42% say they could keep the reduction going for between three and six months. 

Those landlords making a full-time living from their lettings activity (60%) and those who are retired (51%) are significantly more likely to say they could sustain the rent reduction for more than six months.

Starting or expanding your property portfolio?

Whether you are starting or expanding your property portfolio, we are here to help you find the right buy-to-let mortgage deal. For more information, contact The Official Mortgage Company – telephone 01777 809700 – email admin@officialmortgage.co.uk.

Source data:

[1] Research conducted by BVA Group/BDRC with 729 UK landlords between January and March 2022.

[2] Source: BVA BDRC’s Core Landlords Panel tracker. Mean annual per property gross rental income: £7,625.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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