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Mortgage Chiefs forecast better days for landlords in 2024

Many landlords say they’re set to expand investments in 2024 despite facing up to 80 per cent higher costs in the next two years.

The Intermediary Mortgage Lenders Association says many small scaler landlords with mortgages face the prospect of struggling to break even in the next two years, with their cost of borrowing soaring by an anticipated 80 per cent as they refinance off historically low fixed rates. 

The research unveiled the following facts about a landlord’s typical financial position - the median average annual rental income is now £14,000 with the median average annual profit being less than £9,000. And the average expected increase in annual interest payments by 2025 is £7,700.

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IMLA’s new research says that contrary to popular belief, most landlords do not have significant resources to draw on outside their rental business. On average, landlords’ non-rental income is roughly in line with tenant income, except in London where tenants earn substantially more.

The research found that 80 per cent of landlords own one or two properties, making up 61 per cent of private rented stock, while 13 per cent are classed as portfolio landlords owning four or more properties accounting for 39 per cent. 

Despite a surge in the number of landlords setting up corporate structures since the removal of tax deduction for interest rates in 2017, only 10 per cent of all rented property is held in limited companies, with 90 per cent still held in personal names. Just three per cent of the UK private rental sector is owned by institutional investors.

Changes to tax and legislation have already impacted the viability of many of these small businesses. 

While only 36 per cent of respondents in this research believed they were paying more tax as a result of the removal of the mortgage interest deduction, based on the income data supplied by respondents, IMLA calculates that 58 per cent will actually be paying more tax. 

Meanwhile, 64 per cent of respondents said increased regulation had hiked their costs, rising to 73 per cent of portfolio landlords. When asked what impact a mandatory rent freeze would have on their rental business, seven per cent said they would be forced to sell property or exit the market.

Despite the serious challenges to their business, IMLA says the one heartening takeaway is that the majority of landlords are committed to remaining in the PRS for the longer term. 

The association forecasts that 53 per cent of mortgaged landlords plan to buy more rental property over the next five years, as do 25 per cent of unmortgaged investors. Only 21 and 17 per cent respectively say they will sell property in that timeframe. 

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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    Interesting that the article claims "that the majority of landlords are committed to remaining in the PRS for the longer term".
    Is that because the CGT is too painful for us to leave? Those of us that got into BTL in the early days are facing a choice of letting the government steal a huge chunk of what should have been our pension or just stealing our retirement.

    The article also states rental returns are lower than returns currently available elsewhere.
    So lower returns, huge responsibility, no indexation relief, minimal ability to contribute to a SIPP (so no access to the tax relief everyone else enjoys). Why would anyone enter the industry today?

    Saying about half of mortgaged landlords and 25% of unmortgaged ones plan to buy something in the next 5 years is pretty minimal. I used to buy 2 a year.
    Roughly 20% say they plan to sell something in the next 5 years. That doesn't include the percentage who will die or develop serious health problems. With the average age of landlords being about 60 that's going to be a very real and increasing issue.

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    The IMLA obviously don’t read landlordtoday or they would revise those figures for selling.😀

     
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    I used to aim for one a year for cash, that cash now goes else where

     
    Peter Why Do I Bother

    Just been on a website looking at properties to give me an idea on market rent and possibly to sell a couple.

    Within a 5km radius of my own home there is over 40 properties all with tenants in situ and open to offers, the better days appear to be a fallacy....

     
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    The IMLA is either naive or wilfully misleading here. Polls and surveys are rarely worth paying attention to - any recent election would tell you that. How about looking at the actual REALITY that landlords have been net sellers for more than 5 years now and there’s no sign of this reversing. And in that same timeframe demand has increased. Quoting that 80% plan to stay in the sector is meaningless - the reality is that the market is poor for tennants and landlords and the outlook is that it will get worse. I really don’t know what they were trying to achieve with this, ahem, news.

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    The research, the IMLA claims to have been seems to have been from only a particular section of landlords, who are young and working. These young people are not aware of the pitfalls like the legislation. Or they have inherited properties. I know many people who do not follow landlordtoday are totally unaware of ISAs. Not many wish to get into stock ISAs, as they do not understand sticks and shares. However, these are LL's, who have properties in north England, bought at £30 to £50k. The properties have appreciated in value so are able to remortgage and bought many properties, like 20 to over 50 of them, now. However, scenarios change in London with very costs of purchasing and maintenance of properties and the legislation. I do not believe the interest rates and cost thereof is that huge, especially if landlords anticipated increase in rates before they happened. I am surprised
    that IMLA states that with rent freeze, only 7% would leave the market. This again shows they have selected a research on a cross section of people. I believe, as Jo says, a lot of LL's are on average 60s. They would certainly feel i
    t is not worth all the trouble, as they have kept up with all the legislative changes in tax, from removal of 10% fixtures and fittings relief to s24. Now possibility of removal of s21 and rent freeze will destroy the PRS. IMLA is not
    understanding the PRS. Kate does say that everyone talks about the difficulties facing the tenants but not the financial and other strains caused by the LL's. The article seems to contradict. There are young people who do not quite understand what owning properties mean. They only see the incomes for LL's and not all the hardships gone into it, and worse daily occurrences. Like my husband's sister thinking her children would inherit our properties or be able to live there rent free as soon as they left university. I believed she inherited a larger share of her father's inheritance, so she should have bought properties. But she did not know how to. She asked for advice from her brother, my husband, who said that it was me who bought the properties with his name included. Of course, she knew how to order me about and take advantage of me, so it was below her dignity to ask me. Ended putting her vast amount of cash in the bank with pittance of interest at the time. Gave away huge amounts to her children when they left university, asking us how much we would contribute to them. We had almost £400k in our residential mortgage and I knew we would have to pay that of and buy to let properties mortgages with all the upcoming legislation. They only saw that I had some properties but no clue where or what. Unless she asked me specifically, I never discussed my affairs. Of course, she never asked me anything, just her orders. Over the years, as I started to earn a lot of money with managerial responsibilities, I learnt to be quietly assertive. Just learnt to say no, without any explanations. I have a very large family, who understands work ethics and willing to work for they want and have invested their hard earned money into properties. Asking for money even within family is very tabu and totally foreign to us.

  • David Hollands

    With the loss of the mortgage tax relief Private buy to lets with a mortgage are running at a loss.
    The result of this is Tenants will have to be evicted and properties sold.
    This is not good for me or the tenants.
    The current BTL Tax is unfair to the private landlords.
    By the end of 2024 50% of the private Buy to let will be gone, rents will go up due to 20 tenants trying to rent each property that's left.

    Reply Edit Like 3 people like this Report
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    Worried Landlord20 December 2023 10:07 AM
    It's already a rate of 100 enquiries in 3 days per property (at which point openrent pause your advert) so there would be even more enquiries if advert not paused...

    Private landlords need action Now !!!

    Or the private rental market will be out of control !!

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    Like Andrew says, I used to look at buying 1 or 2 a year and now the money goes elsewhere.

    I don't have any mortgages but its no longer worth the hassle.

    What I put assist for 2 more houses will no sit in a bank account earning 5.5% for the next 12 months. No late night phone calls.

    I retire in 2 1/2 years and really don't want to give the criminals in charge of the country any more tax money than I have to. They have taxes landlords out of existence.

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    Exactly how a lot of us feel

     
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    • A JR
    • 29 December 2023 17:57 PM

    Yet more self serving poorly researched clap trap.
    There is no believable ‘positive spin’ that can hide the fact that the PRS is being slaughtered at the very time it is most needed.

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