With the cost of living rising, many of us are feeling the pinch and landlords are no exception. Despite rents rising and strong demand in the rental sector, being a landlord is becoming tougher financially, with profits shrinking or disappearing completely. A record number of landlords are already quitting the private rental sector, so will a turbulent financial outlook make you re-evaluate your property investment plans?

Historic tax changes finally biting

Since April 2020, landlords have no longer been able to deduct any mortgage interest from their rental income to reduce their tax bill. Instead, landlords receive a tax credit, based on 20% of their mortgage interest payments. This change, which was gradually phased in from 2017, was the start of decreasing profits for landlords.

Higher-rate taxpayers have been hit particularly hard, as they had effectively been receiving 40% tax relief on their mortgage payments. The new tax rule has also seen more landlords pushed into a higher tax bracket, as they must declare the income used to pay their mortgage on their tax return.

Expenses dent profits

Whilst renters might believe that landlords are raking in profits from their rental properties, it’s far from reality. Analysis of a recent Freedom of Information request sent to HM Revenue & Customs by Hamptons shows how much rental income buy-to-let investors get to keep.

Research suggests that landlords who filed a self-assessment tax return in the tax year ending April 2021 spent an average of 31% of their rental income on expenses. This included maintenance, professional services, insurance and legal costs. In the future, these costs are set to get more expensive, thanks to rising inflation and interest rates, together with more expensive fuel, materials and labour.

The crippling cost of mortgages

Even before the Bank of England started increasing the base rate – forecast to top 2% in 2023 to curb inflation - landlords have been battling with steep rises in buy-to-let mortgage rates. These increased costs in borrowing are reducing the margins for landlords, seeing their profits shrink further.

Recent research by Property Masters illustrated how the cost of a two-year, fixed-rate buy-to-let mortgage has risen. A typical landlord home loan for £160,000 with a loan-to-value of 60% is now £103 more expensive when compared to January 2022.

Investment needed to meet new EPC standards

Many industry experts and letting agents feel the revised EPC standards – due for implantation from 2025 – will provide the biggest financial shock to landlords. The investment needed to bring lets to a C grade is going to be substantial for many (we’ve written about the cost of the top three eco improvements), and it’s unclear whether any cash outlay will be recouped through higher rents. The cost of installing air source heat pumps and solar panels, replacing glazing and overhauling insulation will run into thousands of pounds, and may prove loss-leading alterations for many landlords.

Sell up without hassle

If the profits on your buy-to-let are ebbing away - or your profits have disappeared altogether - sell without hassle to LandlordBuyer. Cash in on the value of your property quickly, without the need for an estate agent. Request an online valuation now and discover how much equity you could currently benefit from.

We buy properties regardless of condition, lease length or tenancy status – occupied or vacant. Contact our team to get your free cash offer now.

« Older item Back Newer item »

Get your free CASH offer and enter your details for an instant, no obligation offer for your property
Please search for the address of the property you wish to sell, not your home address Got it