Balancing rental profit with property standards became harder than ever in 2022. Research by Help Me Fix found the cost of maintaining a property between January and June rose at an alarming amount.
It calculated that the annual cost of maintaining a property was a UK-average of £2,864 – a figure that took the cost of materials and trades into account. This represents a 4.7% increase in costs in just six months. The rise comes as no surprise, especially as The Rated People Home Improvement Trends report for 2022 forecast that 91% of trades expected their costs to increase in 2022, while 82% said they would need to increase their prices
While maintenance costs are part and parcel of being a homeowner, they are more of a financial burden to landlords. When looking at maintenance costs in relation to income, Help Me Fix found the cost of maintaining the average rental property required 21.2% of rental income. In some regions, the percentage edged closer to 30%, with a figure of 27.3% in the East of England and 27% in the South East.
How well a property is maintained is currently in the spotlight following the tragic death of Awaab Ishak, whose exposure to black mould contributed to his death. Although the two-year old resided in social accommodation, the tragedy has cast shade on the wider rental sector. The picture wasn’t helped by a comment made by former Housing Secretary, Robert Jenrick, in November. He warned “evidence suggests” that the private rental sector has an average of “lower standards than the social rented sector.”
Although the Housing Health and Safety Rating System (HHSRS) and the Housing Act 2004 are in force, the current Government is set to elevate living standards in the private rented sector even further. The details of a new Decent Homes Standard – as mentioned in the Fairer Private Rented Sector White Paper – are something private landlords are patiently waiting for, with one eye on what new improvements may be needed to bring their buy-to-lets up to scratch.
It's highly likely that forthcoming changes will be mandatory and not optional, with landlords forced to upgrade their portfolios if they want to stay legally compliant. LandlordBuyer expects the percentage of income spent on maintenance to rise, especially as we also edge closer to stricter minimum EPC ratings
The viability of the buy-to-let sector is waning, especially as numerous landlords come off fixed rate mortgages. They face the prospect of pumping thousands of pounds into their property to reduce their loan size and interest coverage ratio, or have to consider raising the rent exponentially to cover costs.
With the latter, there will be a ceiling limit on the amount of rent a tenant can afford – an aspect that is currently playing out against the cost of living crisis. The situation for some landlords is so dire that The Sunday Telegraph ran an article on the matter in November 2022. It was headlined ‘landlords’ profits to fall to £7 a year as mortgage rates cripple investors’.
If the cost effectiveness of being a landlord is weighing on your mind, LandlordBuyer can help. We’d be happy to work through 2023’s figures with you and forecast into 2024. If the profit margin isn’t worth the effort, you find yourself predicted to break even or perhaps your investments are heading for loss-leading territory, LandlordBuyer can become part of your exit strategy.