As inflation passes the 10% mark, it’s no surprise that many landlords are hurriedly reviewing the health of their buy to let portfolio.

You could argue that it’s still a buoyant market for investors. Rents have risen by 11.8% in the last year, taking the average monthly rent to £1,126 outside of London, and voids are at an all-time low, demand is at an all-time high and there are still not enough rental properties to go around.

And although the house price boom is starting to slow, with year-on-year increases falling from 12.8% in the 12 months to May 2022 to 7.8% in June, landlords will have seen a boost to their capital gain.

Having said that, sale value is only really relevant to landlords who are looking to sell up and cash in. The fact remains that average yields are around the 5.5% mark and with the Bank of England base rate having increased to 1.75%, with further rises on the horizon, landlord profits are dwindling. Some will be paying an extra £2,784 a year in mortgage interest and the rising cost of repairing and maintaining a property, not to mention energy performance improvements, will add even more expense.

The other negative knock-on effect is that 20% of tenants are already struggling to pay housing costs, and that’s before the impending energy price hike.

For leveraged landlords, many of whom rely on the rental income to pay for their own living expenses, they are left with no option but to proceed with evictions, and even that is going to get harder with proposed rental reforms.

Time to sell up?

It’s a vicious circle with very few options for landlords.

Of course, they can shop around for the best mortgage deal and increase rents to cover rising costs, but this would only add pressure to the tenant and increase the risk of non-payment.

As a result, some landlords are looking to offload their highly leveraged and under performing assets. But as we all know, selling a rental property is not as straightforward as selling an owner-occupied home.

One option that is becoming increasingly popular among landlords is sales to professional cash buyers. Providing speed and certainty of sale with no fees, most companies offering these services guarantee to purchase any rental property regardless of location, condition, tenure, or arrears status.

But for many hard-working landlords who have put blood, sweat and tears into building a portfolio, it’s worth doing a spring clean of your property investments first.

Evaluate profit margins

Really take the time to understand your actual return on investment. Not just your gross or net yield, but also by putting a value on your time, especially if you are hands-on in the management of your rental portfolio.

Examine borrowing

If you have a mortgage on the property and are in a fixed deal, start to stress test against the current rates and future rises to see how that will impact your mortgage payments. If you’re deal is about to come to an end, consider fixing to protect yourself against any further interest rate rises.

Study your expenses and running costs

Now is the time to look at any other costs you have such as insurances and utilities (if you include bills in your rent) and shop around for the best products and suppliers. If you use a letting agent of property manager, are you better off taking on the management yourself to reduce costs?

Consider regulatory changes

Educate yourself on current legislation and any changes due such as the increase in energy efficiency standards and Renters Reform Bill that could require you to make some improvements to your property and impact how your property is run and managed.  

Assess cash reserves

If you’ve made healthy profits from your buy-to-let properties in the past, evaluate whether you have a good enough fighting fund to weather this storm. You may need to dip in to any reserves to cover void periods, unplanned maintenance, energy efficiency improvements, increasing running costs and service charges or even lease extensions.

Essentially, you need to know if your buy-to-let is inflation busting or whether you need to get out while you can and put your money into better performing properties of investments.

* Jason Harris-Cohen is managing director of Open Property Group *