If you have a mortgage on a variable- or tracker-rate deal, or your existing fixed-rate deal has come to an end in the last few months, it’s likely your repayments have risen sharply.
If you have a mortgage on a property you let out, this could cause particular issues for you. If the rent you receive needs to cover the mortgage you pay on the property, you may have had to think hard about whether you increase the rent you charge on it.
So, it’s perhaps no surprise that the BBC reports that rents are rising at their fastest rate in seven years.
If you are a landlord, raising the rent is a tricky and often moral decision. Read on to find out how landlords are squaring rising costs with looking after their tenants.
A fine balance between generating income and keeping good tenants happy
The BBC report that rents rose 4% last year as landlords passed increasing housing costs onto their tenants. According to the Office for National Statistics (ONS), a quarter of tenants surveyed in December said their rent had risen in the past six months.
If you’re thinking about raising the rent you charge, you are not alone. Mortgage Strategy reports the recent findings of a survey that revealed half (49%) of buy-to-let owners feel that “it’s harder being a landlord now compared to a year ago” thanks to high inflation, rising interest rates, and an uncertain housing market.
The poll also found that almost two out of three landlords (62%) say they are likely to raise rents by at least 10% over the next year.
While most landlords are seriously thinking about raising the rent they charge, the study finds that buy-to-let owners feel “conflicted about passing on costs in an already difficult climate”. Two-thirds (64%) are worried that tenants may not be able to pay their rent in the near future because of the rising cost of living.
As a landlord, this is a tricky decision.
On one hand, you bought the property as an investment to generate an income, so you are within your rights to derive as much value from it as you can.
On the flip side, good tenants are hard to find. There’s no guarantee that they would stay if you raised the rent, and future tenants could be more problematic. And, of course, if you don’t find new tenants straight away, you’ll have a void period that could end up costing you more in the long run than leaving the rent as it is.
A middle ground might be to raise the rent by a smaller amount. This could help you absorb some of your additional costs, while also ensuring that your tenants can shoulder a small rise.
Remember that any rent increase must be “fair and reasonable” and in line with rents on the open market in your area.
Rising rents could generate positive yields for buy-to-let owners in 2023
While there has been much press at the uncertain state of the UK property market, 2023 could provide opportunities for investors.
Firstly, with rents rising across the country – at the fastest rate since 2016 – the yields on property could provide a solid return on investment.
The rising cost of living and economic uncertainty is also affecting the ability of many renters to get onto the housing ladder. Mortgage Strategy reports that 18- to 34-year-olds expect to be £146 worse off each month due to the rising cost of living, impeding their ability to save a deposit and buy a home. Consequently, demand for rental properties is likely to remain strong.
Additionally, a more challenging housing market could provide great opportunities for investors to get a great deal on the purchase price of a home. This could help boost your yield and your chances of capital growth in the future.
The top 3 areas for buy-to-let in 2023
Each year, challenger bank Aldermore publishes its buy-to-let city tracker, ranking the UK’s best areas for buy-to-let. The tracker is based on five key factors, which combine to make investment locations appealing to landlords:
- Average total rent
- Short-term returns through rental yield
- The percentage of the city population in the rental market
- Long-term returns through house price growth
- The lowest number of vacancies as a proportion of the total housing stock.
Their 2023 findings revealed that Manchester is the best UK location for landlords. This is mainly thanks to its long-term property growth (an annual average of 5.6%), plus strong tenant demand. More than 3 in 10 residents rent privately.
London was ranked second on the list, with Bristol coming in third spot.
Peterborough and Milton Keynes were strong performers in 2023, rising into fifth and sixth place respectively, while the home counties cities of Reading, Luton, and Southend also featured in this year’s top 10.
Get in touch
If you want to buy an investment property, or you’re a buy-to-let landlord looking for advice on your borrowing, our experts can help.
Please email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.
