Despite facing an imminent surge in costs hovering around an alarming 80%, landlords across the UK are gearing up to expand their investments in 2024. The Intermediary Mortgage Lenders Association (IMLA) has unveiled compelling data, indicating a challenging financial landscape for many landlords in the forthcoming years.
The association’s research sheds light on the predicament faced by smaller-scale landlords relying on mortgages, foreseeing a daunting struggle to break even. This is primarily due to an anticipated 80% spike in borrowing costs as they transition away from historically low fixed rates.
Key findings paint a stark picture of a landlord’s financial status quo – the median annual rental income stands at £14,000, with profits averaging less than £9,000. Moreover, the projected surge in annual interest payments by 2025 is estimated at an average of £7,700.
Contrary to widespread assumptions, the majority of landlords lack substantial financial resources beyond their rental ventures. On average, their non-rental income parallels that of their tenants, except in London where tenant earnings notably surpass landlord incomes.
The research also underscores the landlord demographic: 80% possess one or two properties, accounting for 61% of the private rented stock, while 13% are categorized as portfolio landlords, collectively owning four or more properties, amounting to 39%.
Despite an increase in landlords adopting corporate structures since the 2017 removal of tax deductions for interest rates, only a fraction (10%) of rented properties are held in limited companies, with the vast majority (90%) still under personal names. Institutional investors own a mere 3% of the UK private rental sector.
Tax alterations and regulatory shifts have already impacted the viability of numerous small-scale rental businesses. Despite only 36% of respondents perceiving increased tax burdens post the mortgage interest deduction removal, IMLA’s analysis predicts that 58% will actually face elevated tax payments.
The research reflects that 64% of respondents attribute escalated costs to heightened regulations, soaring to 73% among portfolio landlords. Additionally, when posed with the hypothetical scenario of a mandatory rent freeze, 7% indicated potential property sales or market exits.
IMLA, acknowledging the formidable challenges looming over landlords, finds solace in the resolute commitment of the majority to persist in the Private Rental Sector (PRS) over the long haul.
Anticipating the future, the association forecasts a significant 53% of mortgaged landlords planning to acquire more rental properties in the coming five years, alongside 25% of unmortgaged investors. Conversely, only 21% and 17%, respectively, intend to sell property in that timeframe.
Kate Davies, Executive Director of IMLA, emphasized, “The PRS is integral to the UK’s housing landscape, accommodating 20% of households. The financial strains on landlords have been overlooked for far too long. Our research highlights the financial constraints faced by small-scale landlords, hinting at imminent rent hikes for business viability.”
Davies urged policymakers to comprehend the intricate pressures and cautioned against policies that could further deter these small businesses from investing, reinforcing their status as the backbone of the PRS.