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Landlord profits declining

Journalist: Jake Carter, Mortgage Introducer

ended 27. June 2023

Landlords are making their lowest profits for 16 years as interest rates rise, resulting in some choosing to exit the sector, according to estate agency Savills. 

What support would you like to see introduced for buy-to-let consumers?

What advice do you have for buy-to-let consumers considering exiting the sector due to declining profits?

How will landlords exiting the sector impact the overall housing market?

10 responses from the Newspage community

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Michelle Lawson
Director at Lawson Financial
The Government should really be looking at reversing Section 24 for a start as this is a big driver. Letting property is a business and the costs of running this should be able to be deducted like in any other business. This has been a large unintended consequence of why rents are also rising as well as the additional regulation, increased mortgage rates, red tape and impending legislative changes removing Section 21. Landlords don't have to house people, they choose to for an investment/business purpose. The councils have sold off a significant stock under Right to Buy so also now heavily rely on the Private Rented Sector but at the same time they do not support the landlords accordingly as the Councils bite the hand that feeds them when it comes to landlords wanting to evict a tenant. The Housing ministerial role is a junior role and not taken seriously enough and until this is made a senior department like Education and Defence this crisis will deepen further until it is too late.
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Jamie Elvin
Director at Strive Mortgages
Landlords are currently feeling the impact of the interest rate rises more than most. Not only do they face increased interest rates, but many of them are also unable to remortgage at all due to the heightened rental stress tests. As a result, they may only be offered potentially unfavourable terms from their existing lenders or be faced with the lender's standard variable rate, which for most is now above 8%. There needs to be some relaxation on the stress testing for buy-to-let landlords seeking to remortgage to avoid a mass exodus in the market. While some lenders currently offer this flexibility, it needs to be more widespread.

In the short term, I can see the benefits of selling up and exiting the market. However, for those still keen to continue, it's important to take a long-term approach and budget for short to medium-term periods with no profits or losses. The property market is resilient and always goes through cycles, they may regret selling in years to come.
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Craig Fish
Director at Lodestone Mortgages
I imagine landlords feel like it is currently an all out attack on them. Unfortunately, they also have mortgages to pay as well as other costs too. For many, this is their business and livelihood, so it isnt nice to see them packing up shop, and exiting the sector. This is also bad news for the tenant, with a lack of supply (which is already an issue) fewer properties are going to lead to an even more dysfunctional rental market. The greed of the government to tax to the hilt and restrict landlord choice (although section 24 is aimed at helping landlord and tenant) has had dire consequences on the sector. In my opinion, it needs scrapping and the government needs to tackle the age-old problem of housing supply. I'm afraid the mortgage time bomb is about to have disastrous consequences on the housing market as a whole. I just hope the government is ready for the fallout.
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Elliott Culley
Director at Switch Mortgage Finance
Landlords have been squeezed so much in recent years and profits have slowly diminished. With interest rates rising, what little profit some were making has now gone. This is leading to some landlords leaving the market and therefore it's driving up rental prices and in some cases, there are hundreds of applications for one rental property.
The government needs to rethink its strategy when it comes to taxing landlords. The current strategy has backfired. The initial strategy was designed to discourage landlords from purchasing and give first-time buyers a chance of getting on the mortgage ladder. The government needed to concentrate on building more affordable housing and provide more help to first-time buyers. Now renting is harder and people still can't buy a house.
A rethink is needed and I believe mortgage payments should be, once again, offset against the gross profit so that being a landlord can be somewhat profitable. Failing this perhaps allow 50% or more to be offset.
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Luke Thompson
Director at PAB Wealth Management
I don't believe there should be any direct support for Buy to Let landlords. At the end of the day they are running a business and as such it is not up to anyone to provide them with support.

Landlords who are considering exiting the sector need to be aware of potential taxes that are payable and also need to remember that capital appreciation is something they need to factor into their profit and loss figures.

Landlords exiting the sector en masse has the potential to reduce house prices if the market becomes flooded whilst at the same time increasing the costs for those who need to rent as there won't be as many properties available to rent.
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Zaid Patel
Director at Highcastle Estates
As landlords exit the sector, the supply of rental properties will decrease. This will likely lead to higher rents, as there will be more competition for fewer homes, which we have already seen. Additionally, the lack of rental properties will make it more difficult for people to find housing, coupled with the cost of living crisis, which may cause more people to require temporary accommodation from local authorities.

The government must build more affordable housing to help address the problem and make it easier for people to find a place to rent, easing the pressure on the housing market.
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Joe Stallard
Director and Advisor at House and Holiday Home Mortgages
It's very tough out there for BTL landlords currently. It’s about balance – the opportunity for people to own good quality housing is vital, but so is ensuring that good quality landlords aren’t driven out of the market. The knock-on effect of many landlords exiting the sector will be an absence of places to rent for people who don’t want to buy. And not everyone can afford to buy a home so they have to rent. As far as support for landlords is concerned, it seems those who are entering the market now are more likely to be taking a professional approach and this could raise standards overall for renters, so long as rents remain affordable... and that's a moot point.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
Unsurprisingly if a landlords mortgage case has just shot up that's going to make a huge difference in what they make each month. All of a sudden those low-yielding properties may actually cost money each month leaving little option but to sell. Exiting landlords does no one any favours though when tenant demand is skyrocketing as it will do nothing but drive up prices further and make it even harder for people to save a deposit and get onto the property ladder. We NEED a functioning rental market but it is in disarray right now.
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Austyn Johnson
Founder at Mortgages For Actors
Hard to keep raising the rent with every new BoE rise. Hopefully, you are lucky enough to have a LL who fixed long-term last year!

Those with protected tenancy tenants are most at risk if they have geared their properties too high.
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David Robinson
Co-Founder at Wildcat Law
Last one out pays the bill! When supply outstrips demand you get a price fall. When you get supply dumped on the market you get a crash - especially when wannabe buyers cannot afford to buy.
The financial attraction of being a landlord has already been massively eroded by not so stealthy tax raids. This has left many landlords very exposed financially, but when you combine that with the fact many are also highly geared, in a period of rapidly rising interest rates, you face the prospect of armageddon in this sector. The primary losers will be ordinary people with a small property portfolio, but expect to see some larger names go to the wall as well.
The only winners will be cash-rich purchasers who in a period of fire sales should be able to snap up some bargains in the not too distant future. For those who can afford to ride this storm out, history teaches that prices will bounce back but it will be a tough journey out of this financial perfect storm.