Over the last two decades, investing in buy-to-let properties has been a favored avenue for generating income and accumulating wealth, outshining traditional options like stocks and savings. However, the landscape has shifted drastically over the past two decades. Recent tax reforms have dampened the once-lucrative returns of buy-to-let investments. With the burden of elevated interest rates, the sector is witnessing a decline as landlords grapple with increased taxes and mounting mortgage expenses.
"The current state of affairs for landlords appears challenging," notes Sally Lawson, the visionary behind Agent Rainmaker. "Rising mortgage rates have left landlords with substantially higher monthly payments." Reflecting on the far-reaching consequences of Section 24, which she describes as a 'crisis,' Lawson adds, "The imposed regulations have created a scenario where landlords are essentially paying more tax on meager profits. This is clearly unsustainable. Despite industry appeals to the government for reconsideration, landlords find themselves in an untenable position, leading to some agonizing decisions."
Lawson points to alarming estimates suggesting that over a third of a million landlords are teetering on the brink of exiting the private rental sector, considering selling as their sole viable recourse. A report by financial firm Octane Capital posits that this mass exodus could potentially drain over £200 billion from the industry in one fell swoop.
For those landlords who choose to remain, raising rents becomes an inevitable step to counterbalance their growing costs. The Office for National Statistics has recorded a 5.3% increase in private rent costs in the year leading up to July 2023 – the most significant surge the ONS has ever documented.
Lawson underscores the importance of agents working closely with landlords to comprehend their individual circumstances, particularly if they have mortgages on their properties, as these landlords face the greatest risks. She emphasizes, "Communication is the linchpin in any landlord-agent relationship, extending to your management team, which should ensure landlords are not only updated on rents but also receiving the prevailing market rates for their properties. In cases of desperation, agents can assist landlords in finding suitable investors for their tenanted properties, securing buyers willing to engage your management services while retaining the existing tenants."
In conclusion, she emphasizes, "Our industry owes its existence to landlords, and in everyone's best interest, we must rally behind property owners navigating this tumultuous period, taking action promptly."
