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9:52 AM, 26th June 2023, About 11 months ago 30
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Landlords in London and the South East will need to hike rents by a staggering £614 per month to make a profit when remortgaging at present rates.
This means that tenants could see their monthly rent leap from £1,498 to £2,112, on average, marking a substantial 41% increase, Hamptons reveals.
The estate agency warns that the rise would be prohibitive for tenants so many landlords may be forced to sell-up.
The lead analyst at Hamptons, David Fell, told Property118: “We estimate that at a loan rate of 6.3%, that 40% of mortgaged rental homes – or 28% of all rental homes – would become unprofitable when it comes to re-mortgaging.
“This figure takes into account management and maintenance costs, but not tax.
“We estimate that an additional 18% of existing landlords would not pass a stress test of an extra 1% above this rate.”
He adds that stress testing isn’t generally applied to landlords who are re-mortgaging with the same lender – though it is generally applied to new purchases or product transfers to a new lender.
Mr Fell continued: “48% of those homes which are not profitable at the current rates on offer are in London and the South East.
“And this tends to mean they’re expensive, but rents are comparatively low – hence the lower yields.
“It would take a 41% increase in rents here to reach break-even point, with rents needing to rise from £1,498pcm to £2,112 – that’s an extra £614 per month.”
Mr Fell also notes that recently, the average landlord who paid the rate they were stress tested against, for example, 2% above their mortgage rate, would be losing around £1,500 per year after maintenance and management costs.
He said: “For most investors, it’s not a profitable position to be in, therefore it is likely to be unsustainable for anything other than the short term.”
Last week, the Bank of England raised its base rate to 5% and, according to Moneyfacts, an average two-year BTL mortgage rate had already hit 6.44%, with five-year deals at 6.31%.
Just two years ago, the firm says that a two-year deal was, on average, costing 2.96%.
And last week, the property platform Zoopla revealed that 51% of properties being sold in the South East and London had previously been rental homes.
Chris Norris, the policy director at the National Residential Landlords Association, told the Daily Telegraph: “We’re seeing lots of people talking about exiting the market at the moment because they’re not able to increase the rent – they don’t feel it’s right or sustainable to increase the rent by the amount they would have to.
“If you’re talking about 30 or 40%, that’s not sustainable. The option you’re left with is to dispose of that property and to exit.”
Mr Norris says landlords are having problems when remortgaging after a cheap fixed-rate deal had ended because they struggle to pass the stress tests for a lender’s BTL mortgage product.
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NewYorkie
9:59 AM, 26th June 2023, About 11 months ago
I've just written to my remaining tenant of 5 years to explain why I'll be selling this year. I expected shock and panic, but all I got back was... 'OK'.
Apparently, because I was unincorporated, the government doesn't believe I've had a rental 'business', and hence cannot take advantage of normal business rules on profitability and tax.
So, I've retired and been selling up since S24 started to bite.
Andrew Dove
10:17 AM, 26th June 2023, About 11 months ago
David Fell,
As you state, the results do not take tax into account.
If you want to get a steer on tax, please try putting numbers into this web calculator and you will find that almost every landlord with >50% debt, a tax rate of 40% or more and not incorporated will be losing money once exposed to current mortgage rates.
http://www.rentyieldcalculator.co.uk
Beaver
10:40 AM, 26th June 2023, About 11 months ago
The other recent post on this site talking about his issue
https://www.property118.com/landlords-panic-to-fuel-btl-remortgaging-searches-surge/
Says that "The firm [Hamptons] also highlights that BTL searches now account for the lowest proportion of all mortgage searches since August 2021."
I can't see a burst in supply to the rental market coming then. The people who will suffer for landlords not being able to deduct their interest costs are tenants.
Beaver
10:42 AM, 26th June 2023, About 11 months ago
Reply to the comment left by Beaver at 26/06/2023 - 10:40
...and coincidentally I just got an email from Zoopla saying "...Is your BTL yield diminishing? Earn more Airbnb-ing this summer."
cashcow
10:46 AM, 26th June 2023, About 11 months ago
Reply to the comment left by NewYorkie at 26/06/2023 - 09:59Yes we have been forced out to give this government massive CGT increases in income ( I believe its increased Well over 20%for their coffers) I guess we should pat our selves on the back for handing so much tax money to this overspent government. I too am about to write to my lovely tenants to tell them I have to sell. all because of the unfair section 24 which makes this business impossible unless you can join the incorporates. To me its like a corner shop competing against a supermarket who does not have to pay tax on its food, but I guess that was the plan all along keep the money going to the top and keep Mr/Mrs Worker on the hamster wheel.
Tim W
10:54 AM, 26th June 2023, About 11 months ago
Landlords will typically charge the most the market will allow. If properties become unprofitable, selling is the only option.
More houses are the only solution. In the meantime a professional rental market should be built up that doesn't rely on capital gains and cheap interest rates, with a long term view of housing stability.
NewYorkie
10:58 AM, 26th June 2023, About 11 months ago
Reply to the comment left by cashcow at 26/06/2023 - 10:46
For me, BTL was an accident and then a plan for my pension. I was never dependent on BTL, but really enjoyed it... and I made money without ripping off my tenants. Shame some ripped me off!
I am no longer concerned about my tenants needs. That's the government's and Shelter's problem!
Beaver
11:36 AM, 26th June 2023, About 11 months ago
Reply to the comment left by Tim W at 26/06/2023 - 10:54
Landlords haven't typically charged what the market will allow (I haven't). That's because most landlords see the value in long-term tenants. Landlords are putting up rents now because they have no choice.
There is a shortage of rental property. The tax system should favour those who can provide good accommodation doing it.
GlanACC
12:43 PM, 26th June 2023, About 11 months ago
Tenants wont pay that amount, and who can blame them. You can't expect the government to subsidise or give tax relief either. So basically you are running a business and if you aint making anything and (unless like me in a previous 'slump') you can't subsidise your properties for a few years then its time to get out ... when (if) the mortgage interest reduces will you lower the rent ?
NewYorkie
13:13 PM, 26th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 26/06/2023 - 12:43
Uninformed comment! S24 discriminates between 2 types of landlord, both offering the same service. If you are a landlord, you would know this.