85% of landlords to raise rents as costs squeeze profits

Nearly all buy to let landlords (85%) are planning to put rent up in the next year, with more than a third (37%) planning on a rise of between 6% and 10%, research reveals. 

The Landbay survey also found that 36% of landlords will increase rents by up to 5% - that's up from 27% in a previous survey. 

Landlords with medium-sized portfolios, that is between four and 10 properties, are most likely to raise rents, followed by those with very large portfolios of more than 20 properties. 

Fewer than one-in-10 landlords (8%) are planning to increase rents by between 11% and 19%. 

The main reasons for the rent rises are higher interest rates and growing operational costs, Landbay says. 

Demand for good quality rental accommodation 

The lender's sales and distribution director, Rob Stanton, said: "Whereas before, rising rents would often reflect the increasing demand for good quality rental accommodation, today's market now means landlords also have to factor in higher interest rates and operating costs too.  

"With no alternative, many landlords have to consider increasing rent to cover their outgoings." 

Of the landlords putting rents up, half are self-managing their properties or portfolio with 27% relying on an agent and 20% on a management company. 

The survey found that 16% of landlords are paying more than 13% of their rent income on property management.  

Just under a third (30%) are paying 5% on management and 29% are paying between 9% and 12%. 

Returns for landlords have fallen by 45% 

Separate research by Finder underlines the cost pressures on BTL landlords with the personal finance website revealing that the annual returns for landlords have fallen by 45% since 2020. 

The platform says that landlords lack a financial incentive to invest because high mortgage rates - 4.73% for the average two-year buy to let mortgage (75% LTV) in June - continue. 

Finder compared the average BTL mortgage rate, house and rent prices to estimate the returns for a landlord signing up for a new mortgage deal at various times. 

It found that a landlord taking out a two-year fixed-rate BTL mortgage at 75% LTV for an average property costing £230,318 in April 2020, would have had an average monthly return of £776 from rent, after paying the interest.  

This equates to £9,309 over a year, assuming full occupancy. 

45% less in average monthly returns 

However, for landlords taking out the same mortgage in April on a property costing £281,373, they would get 45% less in average monthly returns at £424 - or £5,087 per year. 

That's a dramatic drop of £4,221 in rental income per property. 

Finder's Liz Edwards said: "The buy to let market has been stagnating over the past couple of years as rising interest rates have made it less profitable for landlords.  

"We are now seeing the worrying effects this is having on an already competitive rental market, leaving renters with fewer options and pushing prices higher and higher." 

Landlords in the UK are in a quandary 

The managing director of Accommodation for Students, Simon Thompson, said: "Landlords in the UK are in a quandary since rising costs are forcing them to increase rents, which isn't ideal for tenants. 

"But if they don't, they'll struggle to cover expenses and maintain a profitable business. 

"There's no doubt this situation could lead to an exodus of landlords from the market, further reducing the availability of rental properties and pushing rents even higher." 

He added: "It's a predicament that needs a solution that works for both landlords and tenants."