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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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Beaver
17:30 PM, 26th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 26/06/2023 - 17:16That's right. I also run a separate incorporated business (non property). I only have a small BTL portfolio and I can't transfer that to a ltd co. or roll the CGT over into a limited company without incurring CGT. And because I am not incorporated I can't deduct all my finance costs against rents.
I'm typical of the majority of landlords with a small porfolio. The tax system discriminates and the effect of that is to reduce the supply of housing at a time when there is a shortage.
What's more, pension companies can invest in residential property. But allthough I have money in SIPPS I also can't invest that in residential property not even to reduce emissions or bills for tenants (and with the tax system discriminating against me, why would I?)
So the way the tax system is presently set up it discriminates and I'm not convinced that what it's doing is socially useful.
GlanACC
18:25 PM, 26th June 2023, About 11 months ago
Reply to the comment left by Beaver at 26/06/2023 - 17:30
This might cheer you up, the decent home standards (oming soon) requires kitchens to be 20 years old or less and bathrooms to be 30 years old or less (factor that in to your rent) BUT they are currently both tax deductable if you replace them (assuming you don't make them bigger or better). ... Thought that might cheer you up.
Dylan Morris
8:33 AM, 27th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 26/06/2023 - 18:25
Why should a landlord receive tax relief when fitting a replacement kitchen or bathroom when a home owner does not ? Good job we’ll get a Labour Government next year who can remove such “perks”. Hopefully they’ll remove the tax relief on new boilers, carpets and curtains, and decorating as well. These cheeky landlords getting tax relief on absolutely everything it has to be stopped immediately.
Beaver
8:42 AM, 27th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 26/06/2023 - 18:25
So because that's replacement of one item for another, yes I know that's revenue expenditure and it can be offset against rents. That's always been teh case. But a lot of what needs to be done to comply with EPC improvements is capital expenditure. So you have to finance that and if you are not a limited company you cannot deduct the costs of your finance from your rents. And interest rates are at 6% and climbing. Still discriminatory.
GlanACC
8:42 AM, 27th June 2023, About 11 months ago
Reply to the comment left by Dylan Morris at 27/06/2023 - 08:33
So when a hotel replaces items it shouldn't get tax relief. Why should you get tax relief on the petrol you use for your business. or the water it uses or the gas it uses. You are sounding like Labour
Dylan Morris
9:50 AM, 27th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 27/06/2023 - 08:42Apologies ……that my obviously poor attempt at irony didn’t work.
GlanACC
10:54 AM, 27th June 2023, About 11 months ago
Reply to the comment left by Dylan Morris at 27/06/2023 - 09:50
Nope, lost on me. I take money (and Pink Floyd) very seriously
Beaver
11:25 AM, 27th June 2023, About 11 months ago
Reply to the comment left by GlanACC at 27/06/2023 - 10:54
David Gilmour takes Pink Floyd seriously and he takes climate change seriously as well. So seriously in fact that he auctioned 126 of his guitars to donate the proceeds to ClientEarth.
Much of our emissions come from housing. Just telling landlords to comply with new EPC requirements that are based on a system that is as fanciful as many of Pink Floyd's albums does nothing except hurt tenants.
If our politicians were not so cynical and self-serving they would sort out the EPC system. And they would allow small landlords to deduct the cost of the improvements as revenue expenditure, not capital expenditure, thereby allowing landlords to offset the costs of these improvements against their rents. They would also allow us to invest our self-invested pension funds directly in these improvements rather than forcing us to give our money to funds managed by people who probably stick too much coke up their noses (as I recall, Roger Waters hated Pink Floyd's association with drugs).
As far as I can tell though our politicians are too busy trying to keep us all away from getting access to the data that would allow us to analyse the real effect of their collective responses to the Covid outbreak and j*****g off in front of the media to do anything this meaningful.
NewYorkie
12:13 PM, 27th June 2023, About 11 months ago
Reply to the comment left by Dylan Morris at 27/06/2023 - 08:33
Love it when people express their sarcasm!
GlanACC
14:23 PM, 27th June 2023, About 11 months ago
Reply to the comment left by Beaver at 27/06/2023 - 11:25
I really think we need a new organisation Just stop 'Just stop oil'. The improvements needed to make this country net zero will bankrupt our already bankrupt country., and as part of the process the government will bankrupt landlords. I have not had a single tenant yet that has asked about the EPC rating, or asked for any improvements.