21 September 2017
- Research shows landlords under pressure from multiple changes
- Spend on maintenance and management at risk from rising costs
- A fifth of landlords may sell their rented properties due to additional costs
- Many landlords unaware of changes to mortgage interest tax relief or stamp duty
- Nationwide leads new cross-industry body to support 5m households in private rented sector
As Nationwide assembles an industry alliance to support the private rented sector, new research shows that landlords are struggling to keep up with the financial impact of multiple tax and regulatory changes. This could lead to increased rents, reduced maintenance spending and even landlords being forced to sell properties to make ends meet.
The YouGov survey of 1,000 landlords1, commissioned by The Mortgage Works, Nationwide’s Buy to Let arm, found that many landlords have shielded their tenants from the financial impact of the changes, with almost a third (29%) having never increased their rent. However, the survey shows:
- More than two in five (44%) are now considering increasing rents
- One in ten (10%) will reduce the amount they spend on property maintenance
- One in seven (14%) intend to start managing the property themselves, rather than using an agent
- More than a third (36%) were not aware of decreases to mortgage interest tax relief from April 2017
- A fifth (22%) are considering selling their rental property.
Changes intended to level the playing field between owner-occupiers and landlords risk reducing choice and value in the private rented sector, affecting those who live in Britain’s 5.3 million privately rented homes2. To support landlords and protect tenants, Nationwide is launching a new cross-industry Partnership Board, to help landlords deliver decent, affordable homes for their tenants.
The Nationwide Partnership Board is backed by the National Landlords Association (NLA), the Association of Residential Letting Agents (ARLA), Shelter, Countrywide and The Nationwide Foundation, and meets for the first time this month. It will monitor the health and development of the private rented sector, discuss issues of mutual concern and provide policy suggestions to Government.
Joe Garner, Chief Executive of Nationwide Building Society, said: “Being able to find a decent affordable home is one of the most pressing issues many people face today. Landlords play a vital role in providing homes and choice, where they might not otherwise exist. Our research suggests most want to manage their property well and look after their tenants. However, because letting one or two properties is often not a landlord’s full-time job, many are left struggling to keep up with the ever-growing list of responsibilities, as well as the personal financial impact the recent changes may bring.
“It’s a tough ask to expect small landlords or their tenants to face these challenges alone – we must work together as an industry to better support and inform those providing housing and their tenants.
“With a Draft Bill on letting agent fees already in progress, and greater powers for local councils beginning to take effect, it is clear that reappraising the private rental sector is already firmly on the Government’s agenda and so we look forward to working with the Housing Minister to help influence a future that works for all. By coming together we can help deliver somewhere decent for everyone to call home”.
Landlords lack awareness of tax and regulatory changes
Nationwide’s survey shows that many landlords are unaware of all the tax and regulatory changes, some already introduced, even though these are likely to raise their costs and reduce profits.
- A third (32%) were unaware of additional stamp duty on second homes from April 2016
- More than a third (36%) were unaware of the tiered removal of tax relief on mortgage interest for higher-rate landlords, introduced from April 2017
- 43% hadn’t heard of the consultation on lettings fees being paid by landlords, rather than tenants – which has now been ratified
- One in six (16%) either haven’t heard or aren’t aware of any of these changes.
The combined effect of these measures, as well as with the tougher lending standards set by the Prudential Regulation Authority, have reduced the number of new homes for rent that have been bought over the last year3, resulting in less availability and choice for tenants.
Landlords aim to keep rent rises to a minimum and reduce costs
Among landlords considering increasing rent, almost three quarters (74%) intend average increases of £100 or less per month, with a similar proportion (72%) feeling it’s important their tenant is aware that the increase is just to cover additional costs. This is perhaps why almost half (45%) would prefer to inform their tenant of a rent increase personally, even though two in five (39%) worry their tenant might leave as a result.
For two in five landlords (38%), the rising costs have made them consider getting out of renting property altogether.
Landlords are also looking at ways to reduce their costs, with more than a quarter (26%) of those using an agent considering self-managing their property in future to save money. Currently, three in ten (31%) landlords manage their property let themselves and find their own new tenants. However, more than two thirds (68%) of those surveyed use some form of agency service - with almost half (47%) of landlords relying on an agent to entirely manage their property.
Landlords’ costs average £1,500 a year per rental
Landlords pay significant amounts to manage their rental property including the following average annual7, per property spends:
- Finding new tenants4- £552 (though 18% spend more than £1,000 and 18% spend nothing)
- Annual costs5 - £879 (though 30% spend more than £1,000)
- Annual maintenance6 - £601 (though 16% spend more than £1,000)
- Landlords pay £1,500 a year to rent out a property, rising to over £2,000 if new tenant is needed.
While the mean monthly profit from renting out property, after taking away typical costs, is £610, almost three in five landlords (56%) make £500 or less a month, a third earn less than £300 and 22% less than £200. One in seven (15%) say they make £100 or less monthly profit from renting out their property - less than £1,200 per year. One in 20 landlords (6%) don’t know how much, or even if, they make a profit.
When asked about the financial impact of recent measures on their rental profits, more than a fifth (22%) of landlords simply didn’t know. One in ten (10%) expect to pay an additional £300-£500 per year, and a similar proportion anticipate losing between £501-£1,000 a year. Four per cent expected additional costs of between £1,001-£2,000.
Notes to Editor:
1 Two thirds (64%) of those surveyed let only one property, one in five (18%) let two, and one in twelve (8%) let three - (concurring with recent NLA data suggesting 62% of UK landlords let out only one property.)
2 According to recent data from the Residential Landlords Association (RLA) in April 2017 and English Housing Survey data (March 2016) a fifth of England’s population now living in the private rented sector. RLA say this equates to more than 5.3 million homes – a figure that has doubled since 2000.
3 CML buy-to-let lending figures 13 April 2017
4 Finding new tenants includes advertising property, arranging viewings, running financial background or immigration status checks, paying fees to letting agents to find new tenants, preparing an inventory, pre or post rental cleaning etc.
5 Annual costs include annual gas safety inspection (CP12), electrical safety check if applicable, tenancy renewal, management including rent collection, completing related tax returns, insurance for buildings, paying ground rent if applicable, maintenance charges etc.
6 Annual maintenance costs include wear and tear repairs, redecoration, replacing items etc.
7 For those renting out only one property, the mean was calculated using the total spend on the following in a typical year. Those with more than one let property provided an average amount across all of their properties, instead of a total per property.