Can Landlords Cope With the Cost of Living Crisis?

Prices are going through the roof wherever you look -  from the cost of borrowing to food, fuel and energy.

And the signs are inflation will soar even more over the coming months as the country nervously awaits another energy bill hike in autumn 2022.

The latest government data shows a family of four must spend £400 extra a month to maintain living standards.

The question for many landlords is can tenants afford to pay their rent?

How much does buy to let cost?

Most surveys look at the cost of buying to let from a tenant’s perspective, but rent is not the only cost landlords face.

For example, data from CIA Landlords reveals renting homes in only six out of 33 London boroughs is profitable - and that’s before the cost of living crunch started at the beginning of the year.

Before the crisis, rising property prices and decreasing rents in London impacted landlord bank accounts.

Last year, Barking was the most profitable place for buy to let in the capital - yet the profit was £260 a month or £3,120 a year.

For a property valued at an average of £305,112 with a mortgage of £218,000, the rent was £1,371.

This money soon vanished on a £1,048 mortgage repayment, insurance, letting agents fees, repairs and maintenance costs.

Outside London, the most significant losses were in well-to-do commuter cities, like St Alban’s, Cambridge and Solihull.

CityAverage property priceMortgageRent paid by a tenantLandlord mortgage paymentLandlord monthly costsMonthly loss
St Alban’s£557,872£399,808£1,243£1,917£61£735

Source: CIA Landlords

Cost of being a landlord

The standard view is landlords are rolling in cash that pours in every month from rent.

Most people do not realise the costs of renting out a property.

FeesFrequencyAnnual Cost
Tenancy Deposit RegistrationEvery new tenant£40
Landlord insuranceYearly£170
Energy Performance Certificate10 Years£65
Gas Safety CertificateYearly£100
Electrical safety certificateFive years£120
National InsuranceWeekly£158
Total Annual Cost: £556
Landlords paying licence fees face extra costs:
Landlord licence feeFive years£51
Total Annual Cost: £607

Most rental properties come with white goods, such as washing machines, a cooker, a boiler and a fridge freezer.

The tenant may regard them as part of the rental package, but they come at a cost for landlords.

AppliancesCost to Buy or ReplaceHow often replaced (Years)Annual Cost
Electric Fan Oven£219.8012.5£17.58
Tumble Dryer£299.4010£29.94
Washing Machine£343.3010£34.33

Source: CIA Landlords

And there’s another cost to consider - repairs and maintenance. The rule of thumb is to spend one per cent of the property value on repairs and maintenance each year.

Taking the UK average house price, this would be one per cent of £288,000, which is £2,880.

Tenant referencing firm Homelet says the average UK rent is £1,097 a month -  £13,164 a year. Before costs. So,  repair and maintenance soak 22 per cent of revenue from a landlord.

Buy to let rates rise

Although mortgages are a landlord’s most significant expense, rising interest rates should not pose too much problem.

A fixed-rate loan protects around 80 per cent of borrowers so that they will see no mortgage rate rise until the end of their contract.

Those who feel the pain are the one in five without a fixed rate and landlords coming out of a fixed rate deal looking to lock in again.

The average two-year buy to let deal has seen a rate rise of 0.5 per cent since the start of the year, standing at 3.41 per cent - the highest level since September 2015.

View Related Handbook Page

Investing in a Property

Investing in a private rented property can be achieved in a variety of ways. Sometimes landlords inherit a property that they then turn over to renting. Sometimes owners of properties become unintentional landlords because they are unable or unwilling to sell a property at the value the market currently dictates.