Is being a landlord still an attractive option in the current climate?
Buy-to-let has been an enormous success story for at least the last 25 years. A combination of low interest rates and seemingly unstoppable property value increases led to a situation where becoming a landlord seemed like a no-brainer for anyone with a bit of cash to invest. Or even with no cash to invest, since buy-to-let mortgages were, in their heyday, easy to obtain and cheap to maintain. But things are looking slightly different now, and a combination of different factors are putting pressure on the industry. Is being a landlord still an attractive option in the current climate?
Over the past decade, a series of hurdles have presented themselves to landlords. In 2015 the then chancellor George Osborne reduced tax relief on buy-to-let mortgages, and soon afterwards came a three per cent Stamp Duty surcharge on additional property transactions. Add to this an increase in regulations regarding energy performance, safety and rating requirements – plus Michael Gove’s current plans to increase tenants’ rights – and the situation was looking tougher than ever, even before interest rates increased substantially at the end of 2022.
Inevitably, some landlords are deciding that it’s not for them and have sold up already, or are planning to. But many of those that remain in the business are finding themselves in an excellent position because right now, rents all over the country are at an all-time high. Lucinda Richardson, Head of Lettings at Winkworth Notting Hill, says that she has never experienced a market like it in her 30 years in the industry: “Actually, since August 2021, the shortage of stock has flipped the rental market round so we’re seeing record rents. We thought the shortage of stock after lockdown would calm down, but it hasn’t, particularly in Central London. Demand has been so strong that rents are increasing to their highest levels ever, and anything that comes on the market is going to block viewings and best bids.” This means that landlords are able to pick and choose their tenants. “We had a one bedroom flat that came on at £425 a week – in one day we had 18 viewings and three offers over the asking price.” Meanwhile, landlords are increasing rents on renewals by up to 25% to keep up with market values, and agents are working hard to keep rises at sustainable levels.
Richardson does point out that it’s the landlords without mortgages who are doing best at the moment. Those with mortgages are certainly under more pressure, and anyone who over-extended themselves in the past decade or so will be feeling the pinch now. James Hathaway of Winkworth in Reading says that his office is crying out for stock, and that high demand is pushing prices up – but there’s hardly anyone coming into the market as a landlord. “They’d rather keep the money in the bank, with the current interest rates,” he says.
So, Richardson says, it’s become a very divided business. “It’s a market of two halves,” she states. “We’re helping landlords to look at their portfolios and consider what’s the best move. Our clients really have to look at their assets now, and we’re encouraging them to consider the long term.” For many landlords, things have never been better.
