9:52 AM, 26th June 2023, About A year 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
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Sign Up13:25 PM, 26th June 2023, About A year ago
Reply to the comment left by NewYorkie at 26/06/2023 - 13:13
That's correct. An incorporated landlord can deduct interest costs, an unincorporated landlord cannot.
The Bank of England sets interest rates but the government sets tax policy. So the problems that tenants are experiencing now because of the shortage of rental property that is also driving up rents are a consequence of government policy (both labour and conservative).
GlanACC
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Sign Up13:32 PM, 26th June 2023, About A year ago
Reply to the comment left by NewYorkie at 26/06/2023 - 13:13No, not uninformed. I have to admit S24 doesn't affect me as a) I have paid off my mortgages and b) some of my properties are LTD companies. I have to admit that S24 WOULD have made my business not profitable - in fact I was on the BBC Money Program (october 2007) as one of the landlords who was subsidising his property portfolio from 'other business income'. I did this for about 3 years when I had 13 properties. I went on to increase this to 18 properties all interest only. 5 years or so ago I could see the writing on the wall and decided to sell 12 of those properties which paid off the remaining 6. I have to say that I wouldn't get into BTL now as I just don't see how you can make anything, in particular if you had some of the scumbags that I had as tenants. I had a look at the mortgage rates today for non-incorporated mortgages. You can get one for 75% LTV and arount 6.8% interest but the 'facility fee' is horrendous between £1500 and £3500. A non-starter
NewYorkie
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Sign Up14:13 PM, 26th June 2023, About A year ago
Reply to the comment left by GlanACC at 26/06/2023 - 13:32
Didn't meant to be insulting. Your situation is similar to mine, except you had more properties. I started selling when I realised what S24 would mean to me. I was on a good salary, my mortgages were high, and the rents (London) were also high. Perfect storm! This government has a lot to answer for! Unfortunately, for landlords and tenants, the next will be even worse!
GlanACC
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Sign Up14:28 PM, 26th June 2023, About A year ago
Reply to the comment left by NewYorkie at 26/06/2023 - 14:13
No insult taken I have always said 'sticks and stones may break my bones, but its the size of your bank balance that really counts'. Although of retirement age, I am still running a couple of businesses and still have those 6 properties. I have lost tens of thousands on various ventures during my life, but you have to speculate to accumulate.
Beaver
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Sign Up14:33 PM, 26th June 2023, About A year ago
Reply to the comment left by GlanACC at 26/06/2023 - 13:32
And that's precisely the point that many of us are trying to make. The situation discriminates against unincorporated landlords (many of whom have a small portfolio and a salary) and discriminates in favour of incorporated businesses. And the whole set up works against tenants' interests - tenants are feeling the pain for government mistakes because the government makes tax policy.
If the government penalises incorporated businesses it will drive out investment. What it needs to do is to set the tax system up so that it encourages investment in the type of property that tenants need and climate change needs. And it needs to allow us to invest our pensions in that.
GlanACC
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Sign Up16:15 PM, 26th June 2023, About A year ago
Reply to the comment left by Beaver at 26/06/2023 - 14:33
The problen with an incorporated business, which I use for 4 of my properties, is that the costs and paperwork are higher. So if you only have 1 or 2 properties it just isn't worth having a LTD company (mind you you scould structure it for inheritance purposes)
Beaver
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Sign Up16:48 PM, 26th June 2023, About A year ago
Reply to the comment left by GlanACC at 26/06/2023 - 16:15
So if you are a small landlord with 1-2 properties (that's the majority) then the tax system discriminates against you and you are penalised for investing in residential property at a time that we need more of it.
GlanACC
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Sign Up16:58 PM, 26th June 2023, About A year ago
Reply to the comment left by Beaver at 26/06/2023 - 16:48
No, the tax system doesn't discriminate against you if you are a LTD company, but in a lot of cases it isn't worth becoming a LTD company because of the other costs. In fact the tax system for a LTD company doesn't follow S24 so in that respect it isn't discriminatory. Its when you are a non LTD landlord it discriminates through S24.as you aren't classed as a trade.
Beaver
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Sign Up17:14 PM, 26th June 2023, About A year ago
Reply to the comment left by GlanACC at 26/06/2023 - 16:58
What I'm saying is that if you are NOT a limited company and have 1-2 properties (this isthe majority of landlords) then you cannot deduct your finance costs, but if you are a limited company you can. So the tax system discriminates against the majority of landlords.
GlanACC
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Sign Up17:16 PM, 26th June 2023, About A year ago
Reply to the comment left by Beaver at 26/06/2023 - 17:14
I get what you say, yes the 'allowable expenses' are different, hence the tax you pay will be different