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Will buy-to-let landlords increase rents to cover mortgage cost rises?

Deciding how much rent to charge can be a balancing act for buy-to-let landlords, who must weigh up their own yield expectations alongside the benefits of a good relationship with tenants.

When you first invest in a rental property, one of your first steps might be to contact a local letting agent with expert knowledge of the area and its rental market, in order to determine the ideal rent to charge.

They will assess factors such as the property’s specific location, the number of bedrooms and total square footage, the energy performance certificate (EPC) rating and its individual assets such as having a private garden or balcony.

Alternatively, for those who invest in a new-build property, such as in a new development of apartments, there will be a guide as to how much rent the property is likely to fetch based on typical rental costs in the local area, while also taking into account the added benefit of the property being brand new.

However, for buy-to-let landlords facing rising mortgage costs, particularly for those who have remortgaged over the past couple of months when rates hit a peak, there is also a question of yields to consider, and whether the rental value is enough to achieve the investor’s desired outcome from the property over time.

Some uncertainty among buy-to-let landlords

As yet, with the situation continuing to change and mortgage rates now on a downwards trajectory, many property investors who let out their homes are still unsure as to whether to pass on any rising costs to their tenants at the moment.

Demand is extremely high in the private rented sector in the UK right now, which has been the case for some time, and this is continuing to push rents up. However, with the cost of living crisis affecting millions of households, including tenants, there is certainly a balance to achieve.

In a recent survey conducted by Landbay, 68% of buy-to-let landlords said that they are likely to increase the rents they charge when it comes time to remortgage. For some of those who took out fixed rates prior to 2022 in particular, costs for new products have gone up significantly.

Of those buy-to-let landlords that indicated they would up their rents, 44% said they plan to increase them by between 6% and 10% if their mortgage rate goes up. A further 70% said they would hike their rents for both new and existing tenants.

However, around a fifth (19%) of buy-to-let landlords said they were as yet unsure of what they would do, and 13% said they would not increase their rents this year, either because of the strong rental yields they were already getting, or because they wanted to keep hold of good tenants.

Prioritise yields or tenants?

This is where the decision can become difficult for many investors renting out their properties. If you have a longstanding, loyal tenant who pays the rent on time and looks after the property, not only can raising rents be an awkward conversation to have, but it could even make them leave to find a cheaper home.

For conscientious buy-to-let landlords, having a good relationship with your tenants can make the job more rewarding as well as easier, particularly if you self-manage. It should be a priority to deal with issues and carry out repairs promptly, just as the tenant is expected pay rent on its due date and treat the property well.

Yields are of course crucial for buy-to-let landlords, alongside the consideration of any gains made through capital appreciation. If costs go up significantly, this will either be taken from the landlord’s income or from the tenant.

But listing a property, seeking tenants and carrying out viewings and reference checks, as well as fulfilling all the legal obligations and paperwork involved in getting new tenants, can be time-consuming and costly. Further to this, void periods between tenancies mean rent is lost, which has a big effect on your bottom line.

Buy-to-let landlords must therefore carefully assess the pros and cons of increasing their rents this year as a reaction to rising mortgage costs. While the added rent might ideally cover the additional expense, if the property sits vacant for a month or you deter good tenants from staying, the maths might not add up.

Pushing renters to rent

Paul Brett, managing director, intermediaries at Landbay, said: “While there’s no question mortgage rates have steadily improved in recent months, many landlords will still see a clear disparity when they come to remortgage. Much like private borrowers, landlords face a rate shock too, and for some, the only possible course of action is to pass this on to the tenant.

“However, with many of our respondents still reporting strong rental yields, there’s hope that landlords will be less inclined to raise rent. That’s especially true for those not looking to upset loyal and trusted tenants. Nonetheless, it’s certainly a challenging time in the buy-to-let market and as part of our duty to our clients, we are always reviewing our product range and looking at ways to deliver a competitive advantage.

“After all, the rental sector plays an essential role in the wider housing mix in the UK. Landlords selling properties does no good for our housing sector as a whole, especially when demand continues to outstrip supply and high mortgage rates continue to push many to rent rather than buy.”

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