The Intermediary Mortgage Lenders Association says many small scale landlords with mortgages face the prospect of struggling to break even in the next two years, with their cost of borrowing surging by an anticipated 80% as they refinance off historically low fixed rates
Many landlords say they are set to expand investments in 2024 despite facing up to 80% higher costs in the next two years.
The Intermediary Mortgage Lenders Association (IMLA) says many small scale landlords with mortgages face the prospect of struggling to break even in the next two years, with their cost of borrowing surging by an anticipated 80% as they refinance off historically low fixed rates.
The research revealed these facts about a landlord’s typical financial position – the median average annual rental income is now £14,000 with the median average annual profit being less than £9,000. And the average expected rise in annual interest payments by 2025 is £7,700.
IMLA’s latest research says that contrary to popular belief, most landlords do not have considerable resources to draw on outside their rental business. On average, landlords’ non-rental income is roughly in line with tenant income, except in London where tenants earn significantly more.
The research found that 80% of landlords own one or two properties, making up 61% of private rented stock, while 13% are classed as portfolio landlords owning four or more properties accounting for 39%.
In spite of a surge in the number of landlords setting up corporate structures since the removal of tax deduction for interest rates in 2017, only 10% of all rented property is held in limited companies, with 90% still held in personal names. Just 3% of the UK private rental sector is owned by institutional investors.
Changes to tax and legislation have already impacted the feasibility of many of these small businesses.
While just 36% of respondents in this research believed they were paying more tax as a result of the removal of the mortgage interest deduction, based on the income data supplied by respondents, IMLA calculates that 58% will actually be paying more tax.
Despite the serious challenges to their business, IMLA says the one heartening takeaway is that the majority of landlords are committed to remaining in the private rental sector for the longer term.
Kate Davies, executive director of IMLA, comments: The private rental sector plays a vital role in the UK’s housing landscape, providing homes to 20% of households. While a great deal of attention is, quite rightly, paid to the difficulties faced by tenants, there has been surprisingly little understanding of landlord finances and the strains on these, until now.