Phil Rosenberg’s portfolio shows just how tough it has become for UK landlords. The 44-year-old scientific researcher owns six facilities in Yorkshire. The two are held through a limited company, and interest rates are offset before taxes, allowing you to earn a good profit.
The remaining four, owned in his name, earn around £1,000 each year. “It’s less than earning one shift a month at the bar,” he says. What’s even worse is that everything was secured before 2022 when mortgage rates were very low. Once each is reorganized, if the first is scheduled for September, the profit of £1,000 is a loss of £2,500 at the current rate.
“As a big drop in mortgage rates, it’s profitable again,” Rosenberg says. “I rely entirely on their capital value to make the investment.”
Three years after the rise in mortgage rates bite the landlord’s profits, investors’ margins like Rosenberg have been cut into bones. More than half of the landlords Ipsos surveyed for HM Revenue & Customs said this month they earned less than £10,000 from their portfolio.
And the cost of all time is increasing. Requirements to improve the energy performance of real estate over the next few years are set for many saddles with higher bills, along with recent increases in safety costs, including gas, electricity and fire safety checks. Plus, many will squeeze even more margins for fear of renter rights bills, which is expected to become law this summer. The budget last October saw an increase in stamp duty paid when purchasing investment properties, and capital gains imposed taxes on sales.
So it’s probably not surprising that investors’ purchases are record lows and are one-tenth of the property purchased by landlords between January and April this year. This is the lowest level since 2007 when Hampton began collecting data.
In nearly a decade since landlords began phased out, many have been asking pressing questions. Is it still possible to make money from your wealth?
Three years after rising mortgage rates began to bite landlords’ profits, investors like Phil Rosenberg feel that margins are cut into bones ©Jo Ritchie/ft
I don’t think about the number to increase. It means that profits are reduced, or in some cases, many landlords are preparing to sell. According to an IPSOS survey, one in four people plan to sell at least one property next year.
Neil France expects he will sell all four properties he owns over the next few years in order to avoid the costs of improving energy efficiency required to change the Energy Performance Certificate (EPC) scheme. He also finds that it takes more and more time and more expensive to run them as rentals.
All four French properties have a D energy efficiency rating despite having double glazing and insulation. He estimates that by the 2030 deadline, solar panels and other improvements will cost up to £12,000 per property. For newly relocated homes, the deadline is still early – 2028.
France’s two-year preference for fixed-rate mortgages means that interest rates have been hit rapidly in 2022. He estimates that total sales have grown from 30,000 pounds to 46,000 pounds at £120,000. Despite the increased rent, he has little remaining in the capital labor required for EPC measures.
“This will take at least four years, and by then I will be 75,” he says. “If regulations do not change, the portfolio will need to be sold prior to changes in EPC.”
As time and money increase to run a portfolio, he can leave the market even faster. One caused more than 5,000 pounds of flood damage to repairs. In the UK, landlords need to ensure that their tenants are living the right life in the UK before the tenant begins. Many of the French property is shared homes, and he constantly checks the official website detailing the eligibility of rentals for foreign citizens to avoid the occurrence of errors. “I feel like I’m an unpaid immigration officer,” he says.
Buying landlords face the toughest financial situation in the market’s modern history.
The current market roots have been in the right to purchase Margaret Thatcher’s purchase plan since 1980. This expanded property ownership by allowing council tenants to purchase the home at a discount. The law introduced a guaranteed short hold tennis, making it easier for landlords to drive out tenants and raise rent. Meanwhile, this phenomenon received much more encouragement in 1996 when lenders launched their first shopping (BTL) mortgage products.
Interest rates have fallen over the next seven years, but home prices have risen, with rental demand, particularly from younger professionals and university students, rising steadily. According to the Hamptons, between the peaks of 2007 and 2015, the percentage of homes purchased by buy-value investors increased from 10% to 16%.
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However, investors are fighting since then George Osborne’s 2015 budget prime minister, as they have been designed to give tax changes a more advantageous way. Osborne announced a gradual withdrawal of tax exemptions between 2017 and 2021, which had previously allowed landlords to amortise mortgage interest on taxes.
Osborne continued to provide tax credits to landlords for mortgage interest, but anyone who wanted to maintain a full tax credit had to sell their property to a new limited company. Conversion required stamp duty payments for each transaction. Since 2016 they also had to pay additional home fees, which were initially set at 3%, but increased to 5% in their budget last October.
But even corporate landlords like Harry Osborne, who own six rental properties in Bath, Bristol and Hampshire, have struggled with rising costs and have plans to put their real estate portfolios on hold.
For most of his estate, 32-year-old Osborne has undergone considerable renovations and extensions after purchasing them. If possible, to maximize rental income, he divides the house into multiple occupants (HMOs) flats and houses. The house accommodates more than three people, not from the same family.
Osborne felt compelled to change its approach last year to secure planning permission for higher materials and labor costs, extensions, ensure changes to use, and continue high interest rates. He has not purchased real estate since.
“My build costs have increased by 50-100%, and my financial costs are nearly doubled,” Osborne said. “The planning system is a hellish scene. It took Bath’s council seven months to make a decision.”
There is also an increase in waiting to receive the licenses needed to rent real estate as an HMO, says Osborne.
The high cost means Osborne has switched to making a home to sell rather than renting, but it’s also frustrating that the sales market is slower. Portsmouth, one of the two homes he is about to sell in Southsea, has been on the market for five months. “My agent says he’s not selling a single home to BTL investors in 18 months,” he says.
As the rising costs narrow down the profits of incorporated landowners, they are shifting to mixed-use investments such as flats with shops below them to save stamp obligations and increase rent.
Murtaza Kiniri bought his first real estate investment: a shop with a flat on Swansea high street, along with a limited company © Charlie Bibby/ft
Murtaza Kinilli, 35, who owns and operates a fire safety business in London, has purchased his first real estate investment.
Because it is considered a mixed use investment, he lowers the stamp duty percentage and saves an additional 5% housing surcharge. This and the rise in rents in the commercial sector mean that he will be his net yield, including his £110,000 loan and tax interest. He also benefits from having two diverse rental streams.
“Hopefully future residential and commercial rents will not be immersed at the same time,” he says.
Peter Williams of Propp.io, a real estate finance comparison website that helped arrange a mortgage for Kinili, says that since the October budget, more customers have favored multipurpose over housing investments. “The additional 2% points (increasing stamp duty) on the second home made a huge difference,” he says.
Those with less than three properties that still make up the majority of landlords look at the toughest financial squeeze and are likely to sell the best. “The overall decline in BTL mortgage stock is likely disproportionate from non-working landlords,” wrote British finance James Touch in a report last July.
Most were landlords by chance. An IPSOS survey found that 40% of people purchased a property for rent and lived or received it as a succession or gift. At 78%, rental profits are not the main source of income.
Today, high printing mandates ban many from selling to limited companies, and ultimately attacking them violently on mortgage tax relief and rising interest rates, and they are unable to enjoy economies of scale flowing from larger portfolios.
Bringing pensions into the scope of inheritance from 2027, and reforms to agricultural and business property relief in the October budget focuses on inheritance planning.
St. James wealth manager Iain McLeod says he has seen an increase in the number of customers coming to him with revenue from Let’s real estate sales from shopping since October.
“Selling BTL properties means you can give away a portion of your revenue and leave you with no time-consuming responsibility to liquidate or operate your BTL portfolio to children who may have busy work and young families,” he says.
Simon Davis, 69, says the final straw was the inheritance tax challenge surrounding the two Richmond properties, which were acquired in 1998. He sells them and prepares to leave the landlord sector forever.
“Neither me nor my financial advisor can find a way to pass my wife and my two Richmond property to my children without overburdening taxes before or after our end of the day,” he says. “It’s been a very satisfying and satisfying project for nearly 30 years, but this fact means that with tax and legislative changes and our age of progress, investments are taking courses.”
Can landlords still make money from their wealth? ftReader’s Views
I am not convinced that the proposed act is vicious for the landlord, especially as many elements of the tenant rights bill are currently being challenged by the major landlords (not our small people, but my wife and I have only 10 units in south London).
But as this government goes its path, landlords are facing deep problems. The person sold is proven right, and the rest of us look like a bunch of right champs.
Nick Bartman by email
It does very well with the rising rental prices. So there are no complaints.
Picakezdi, via ft.com
My wife and I purchased our first and only BTL flat as a hedge at the turn of the millennium. It frustrating me when part-time landlords talk about how difficult the market has become. Twenty years later, our flats had doubled their capital value and our tenants paid off their mortgage. Yes, the yield is not very sexy. Yes, the capital value has been flat-ring for five years. But if you’re in the BTL business to yield, scale up, otherwise stay silent.
FT reader, via email
The rental price is a rocket. There are no new buyers.
Level 2 via FT.com
I have been investing in real estate since 2004 and I believe it is still a great opportunity if you make it right.
I recently purchased a property in March and it is now fully rented and I am always looking for the next opportunity.
Neil Stewart via email
