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Landlords to grow portfolios despite rise in borrowing costs – IMLA

  • 07/12/2023
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Landlords to grow portfolios despite rise in borrowing costs – IMLA
Landlords in the private rental sector (PRS) are planning to add to their portfolios even though they expect mortgage costs to rise, research from a trade organisation showed.

A report published by the Intermediary Mortgage Lenders Association (IMLA) found that landlords with a mortgage believe their costs will rise by 80 per cent once they refinance off low fixed rates. 

Some 64 per cent said changed regulation had led to an increase in their costs, with this rising to 73 per cent among portfolio landlords. 

Despite this, many plan to stay in the PRS with 53 per cent of those with a mortgage intending to buy more property over the next five years as well as a quarter of non-leveraged landlords. 

This is compared to 21 per cent of mortgaged landlords and 17 per cent of unmortgaged investors saying they will sell property in that timeframe. 


Tax and legislative impacts for landlords

IMLA found that just 10 per cent of PRS properties are held in limited companies, despite the rising shift to this type of landlord ownership following the removal of tax deduction for interest rates in 2017. 

Although 36 per cent of respondents believe this change had led to them paying more tax, IMLA calculated that 58 per cent would be facing higher tax charges. 

Some 80 per cent of landlords own one or two properties and account for 61 per cent of private rented stock, while 13 per cent are portfolio landlords with four or more properties and make up 39 per cent of the market. 

The median average annual rental income for a landlord was £14,000, IMLA found, while the median average yearly profit was less than £9,000. On average, landlords annual interest payments are expected to rise by £7,700. 

The survey found that landlords earned a similar income to their tenants with the median non-rental income coming to £39,000, while tenants earned £37,000 on average. 

The research comprised 38 per cent mortgaged landlords and 62 per cent unmortgaged. On average, respondents received a return on investment of 3.7 per cent. 


Little understanding of landlord finances 

Kate Davies, executive director of IMLA, said: “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. 

“Our research shows that many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs. Sadly, reality dictates that many mortgaged landlords will have no choice but to increase rents in order to keep their businesses viable, while debt-free landlords may well do the same in order to make an adequate return, even if that is lower than current returns available elsewhere.” 

She added: “There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved. Landlords’ tenacity is to be commended – it is a great relief that so many plan to stay in the sector and increase supply when they can.  

“Policymakers should beware adopting any policies which could upset what is already a delicate balance, and ensure they do nothing further to deter the small businesses which form the backbone of the PRS from continuing to invest.” 

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