In the UK, the rental market has long been shaped by escalating rental costs and fierce competition among potential tenants.
The latest data from the Office of National Statistics (ONS) suggests that average UK private rents increased by 8.6% in the 12 months to July 2024. Meanwhile, Zoopla says as many as 15 households are chasing every rental home.
This is all against a backdrop of increasing regulation and mounting costs — particularly in recent years with growing anti-landlord policy and successive shocks to the economy with the mini-Budget and high inflation in particular.
Rather than increases in rent being driven purely by opportunity or rising demand, landlords have needed to factor in higher mortgage and operating costs into their decision making. If our latest landlord survey is anything to go by, this trend of rent rises only looks set to continue.
The survey found that nearly 85% of BTL landlords plan to raise rents in the next year, jumping from nearly two thirds (61%) in the previous survey last year.
Among those looking to raise rents, nearly half (42%) are landlords with smaller portfolios of between four and 10 properties, followed by those with 20-plus properties at 28%. Half of these landlords self-manage their properties or portfolio, while 27% rely on an estate agent and 20% on a professional management company.
Of course, mortgage costs are just one part for landlords to consider when reviewing what to charge for rent — higher operational costs are also a factor too. Of the landlords set to raise rents in the next 12 months, 16% pay in excess of 13% of their rental income on property management. Just under a third (30%) pay 5% of their rental income, while slightly less again (29%) pay between 9% and 12%.
With all this in mind, the question then becomes: by how much will landlords look to raise rents?
Just over a third (36%) said they plan to raise rents by up to 5%, which is an increase from 27% in the previous survey. With the ONS annual rent rise in mind, 37% intend to raise rents somewhere in line with at between 6 and 10%. This closely mirrors our previous findings in the Q3 2023 survey (38%). Less than one in ten landlords (8%) plan to raise rents between 11 and 19%.
Of course, there will always be those that choose to refrain from raising rents. Along with those who can cover their mortgage and other operating costs with their rental income, there will simply be those that would rather prefer to keep hold of good tenants. This could mean absorbing any additional cost or delaying rental increases.
Although more than a third (38%) of landlords told us they experience average void periods of around one-to-two weeks, this is also something to consider and the potential loss of rental income when the property is empty. The same goes for the cost of finding new tenants.
Many landlords weighing up this decision will likely be preparing to remortgage on to a higher rate than they are used to. While this will, of course, factor into their decision making, lenders do continue to try and innovate to support landlords going through this process.
Take Landbay for example: we have a like-for-like remortgage range which is designed to support landlords with no changes to their current borrowing requirements. Just recently we added a host of new two-year fixed and tracker products, along with new lower stress testing for enhanced affordability. Rather than the standard calculation of payrate plus 2%, these products are stressed at just payrate.
The aim is to help relieve some of the pressure on landlords going through this process and provide brokers with suitable options to support their clients. The feedback has been very positive and the proposition has proven to be beneficial.
