Becoming a landlord isn’t an act of charity. Property investors enter into buy-to-let to make a profit, whether that’s from the monthly rent, through appreciation over time or both.

Sadly, profit margins have been under constant pressure since the phased scrapping of mortgage interest tax relief, with the zero threshold reached in April 2020. Since then, the ability to make money from buy-to-let has been severely curtailed. While many landlords thought the situation couldn’t get worse than in 2020, Covid happened and when the pandemic ended, 2022 – and a new nightmare – began.

The cost of maintaining a rental property is now swallowing up a substantial – and rising - amount of a landlords’ income. The figure was quantified by Help Me Fix, who found property maintenance now accounts for over a fifth of a landlord’s average income per property. This equates to an average annual maintenance cost of £2,864 – a worrying 4.7% increase since the start of 2022 and more than 22% of a landlord’s rental income, based on an average UK annual rental average of £13,908

The cost of materials and a lack of qualified trades has been cited as likely causes for the frightening rise in costs. Landlords looking to book a trade during the remainder of 2022 – perhaps those preparing for tightening EPC regulations and a new Decent Homes Standard - should brace for increasing costs, as indicated by new research released by Rate People.

Its Home Improvement Trends Report 2022 found when looking at the top 10 trades most likely to increase their prices in 2022, a minimum of 77% are looking to send clients higher quotes this year, with builders, gas engineers and plasterers the most likely to hike their bills. Overall, 91% of trades expected their costs to increase this year, with 82% saying they will need to increase their prices to cover increased expenses, staff shortages and material supply issues.

While a cost crisis in the trade sector has been brewing for some time, this autumn has brought landlords another sharp profit-denting shock. Whether the blame lies with ex Chancellor Kwasi Kwarteng, the Bank of England or even the US central bank, mortgage rate hikes are crippling.

The number crunchers at agent Hamptons claim mortgage rate rises have already slashed the profits of many landlords in half, with future rises potentially eroding all profits entirely – especially among higher rate taxpaying landlords. Typical interest-only, buy-to-let mortgages (two year fixed rate products at 60% LTV) were hovering around the 1% mark in 2021 but are now in the region of 3%. Those with higher LTVs will be punished even further, with the average mortgage rate on a typical 75% LTV buy-to-let at 3.51%, compared to 1.79% to August 2021.

The lettings industry is subsequently holding its breath to see if the Bank of England will raise the interest rate further. Hamptons suggests that if the base rate reaches 2.5%, the average higher-rate taxpaying landlord is likely to make a loss or they will need a yield of more than 7% to stay in profit.

It wasn’t that long ago that LandlordBuyer shot a warning to property investors that buy-to-let mortgages would become more difficult to secure in the future, with lenders becoming jittery about the ban on Section 21 evictions, but conditions have deteriorated far more rapidly than we expected. The news isn’t positive for landlords coming to the end of a fixed-rate deal or for property investors looking to expand their portfolios using finance.

If you are worried about your profit margins during the remainder of 2022 and into 2023, the LandlordBuyer team is happy to work through the figures with you, so get in touch. We can help you realise the best outcome, which may be to cash in your property investments. If you’re curious about how much your buy-to-lets may sell for, you can obtain a free, no obligation valuations here.

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