Landlords in the UK brace themselves for an 80% surge in borrowing costs over the coming two years, predicts the Intermediary Mortgage Lenders Association (Imla). Despite this impending financial hit, a majority are gearing up to expand their property portfolios, according to the association’s recent survey.
Projections from the lender body’s landlord survey suggest a steep rise in annual interest payments for buy-to-let owners, with an average increase of £7,700 per landlord by 2025. This looming financial burden contrasts sharply with the current median annual rental income of £14,000 and profits of £9,000 per property.
The report highlighted the financial constraints faced by landlords, stating, “Most landlords do not have significant resources to draw on outside their rental business.” On average, landlords’ non-rental income closely mirrors tenant income, except in London, where tenants earn considerably more.
The national median average annual non-rental income for landlords stands at £39,000, nearly on par with the £37,000 for private tenants across the UK. In London, however, renters command a median average annual income of £50,000.
Kate Davies, the Executive Director of Imla, underscored the challenges faced by landlords, remarking, “Many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs.” She pointed out the likely consequence: “Many mortgaged landlords will have no choice but to increase rents to sustain their businesses, while debt-free landlords may opt for the same route to secure adequate returns, even if lower than those currently available elsewhere.”
The survey shed light on the impact of tax changes initiated in 2017, with only 36% of buy-to-let owners acknowledging increased tax burdens due to these changes. Contrarily, Imla’s calculations suggest that 58% will witness higher tax payments based on their reported income information.
Regulatory pressures also weigh heavily on landlords, with 64% of property investors indicating increased costs due to heightened regulations, a figure climbing to 73% among portfolio landlords.
Despite these challenges, a significant portion of landlords—53% with mortgages and 25% without—are planning to purchase more rental properties over the next five years. Conversely, only 21% and 17%, respectively, intend to sell properties during this period.
The study also revealed the distribution of landlords across property holdings, with 80% owning one or two properties, constituting 61% of the private rented stock. Portfolio landlords, who own four or more properties, account for 13% of landlords, contributing 39% to the rented stock.
Moreover, despite a notable increase in landlords setting up corporate structures since the 2017 tax deduction removal, a mere 10% of rented properties are held within limited companies, while the remaining 90% remain under personal names. Institutional investors hold a minor share, owning just 3% of the UK’s private rented sector.
Kate Davies emphasized the crucial role of the private rented sector (PRS), noting, “The private rented sector plays a vital role in the UK’s housing landscape, providing homes to 20% of households.” She commended landlords’ resilience, expressing relief that many plan to remain in the sector and expand their offerings.
In closing, Davies urged policymakers to be cautious, stating, “Policymakers should beware adopting any policies that could disrupt the delicate balance and deter small businesses—the backbone of the private rented sector—from continuing to invest.”
Imla’s survey encompassed a random sample of 503 UK landlords surveyed in September, providing valuable insights into the challenges and plans within the buy-to-let market.