Some landlords have been spooked of late, nervous about their additional responsibilities as part of the proposed Renters’ Rights Bill, imminent changes to taxation in the budget and the challenge of high mortgage rates and increased costs.
For some it’s a conscious decision to exit the market while they can, for others it marks the failure of their buy-to-let investments in a challenging market. Being aware of the reasons why your BTL investment can fail, however, can help you be better prepared to avoid these possible pitfalls.
Reason 1) Ongoing costs are crippling you
This is one of the biggest challenges in the current climate. Rising living costs have impacted tenants and landlords alike in the last few years. Although interest rates are starting to fall remortgaging costs are still significantly higher in the previous two years for those coming off fixed-rate deals. This is leading to increased mortgage costs that may not be covered by your rental income.
When investing in buy-to-let property you need to account for the impact of increased interest rates and mortgage rates and assess your likely profitability accordingly. Although interest rates and costs are beginning to fall you still need to keep a strong handle on your ongoing costs, as well as anticipate future rises.
Reason 2) You’ve been stung by an unexpected cost
As a landlord, you have to expect the unexpected – and have the financial buffers in place to enable you to deal with them. It may be that the roof is leaking or the kitchen is tired and needs an upgrade to continue to attract high-quality tenants.
Or it may be that your tenant turnover is higher than expected and you are being left with voids between tenants which is leaving you short of cash. Your costings should take such potential scenarios into account with a financial buffer that will allow you to cover tenancy voids, ongoing maintenance, emergency repairs and any other unexpected costs.
Reason 3) You chose the wrong property
In the current market, house prices – and therefore values – are rising. To ensure that the value of your property investment increases you need to have chosen wisely in the first place, looking for properties in areas that are in demand and have seen consistent price growth.
Speaking to local agents and understanding how other local properties are performing will help you make the best choice in the first place.
Reason 4) You’ve hit a rental price ceiling
The strain on supply has led to rental prices enjoying consistent rises – and it’s landlords who have benefited. But faced with their own rising costs, tenants can only pay what they can afford. Raising prices too high could put off tenants from renting your property in the first place, leaving at the end of their term or falling into rent arrears.
Changes coming in the Renters’ Rights Bill will put further restrictions on rent rises, as well as ending the practice of rental bidding. This means that you will have to publish your asking price and won’t be allowed to ask for or accept any rental bids that exceed that limit.
Reason 5) Taxes are rising
The impact of tax is hitting landlords hard. Tax was previously only paid on the profits from rental income but now applies to your entire rental income. A rumoured increase in Capital Gains Tax would also hit landlords hard. Currently, the higher rate is set at 24% but speculation that it could increase to 40% in the Autumn budget could see the average landlord hit by a £15,000 increase in the CGT owed on an average buy-to-let property according to recent research.
We Can Help
At Progressive Lets we are experts in the rental market in the Peterborough area and help landlords find and manage properties within a 50-mile radius. Get in touch to find out more.
