The Bank of England raised the base rate to 5% on 22 June, a rate not seen since April 2008.
This leaves many landlords in an extremely difficult situation. Landlords are trying to manage their cash flow to make ends meet, with the sword of Damocles of the next refinancing hanging over them.
This is particularly the case if they’re higher rate tax payers who own properties in their own name, having bought before 2015. This is because they can no longer set off all of their financing costs against their income for income tax purposes because of Section 24, George Osborne’s gift to the private rented sector.
It doesn’t matter that a rate of 5% would have been the low end of normal in the years before April 2001. From March 2009 to May 2022, the Bank of England Base Rate remained below 1.0%, and businesses of every kind, including landlords, grew used to almost free money.
It is true that the affordability stress testing for owner-occupier and buy-to-let mortgages introduced by the Bank of England in 2014 and 2016 respectively will help to ensure that borrowers have some cushioning from interest rate increases. However, with CPI inflation remaining high, at 6.7 % in the 12 months to August 2023, it looks as if base rates may settle at nearer their historical norm.
Many landlords are looking for simple ways to save money and improve profitability to tide them through.
In this blog post, I’ve brought together in one place 7 tips on how landlords can improve profitability. None of them will move the needle significantly in themselves, but together, they could make a tangible difference.
Tips for landlords to improve profitability
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Small ways for landlords to increase net profits
Here are three easy ways to pay reduced prices on some standard landlord expenses, to improve profitability.
1. Save money with the NRLA discounts
The NRLA has a number of excellent discounts for members, including B&Q TradePoint, CarpetRight and Currys Business.
Their members’ helpline can save you on legal bills, and they have so many resources for members (take a look here) that make it easy for landlords who want to self-manage. More about self-managing below.
If you’re not already a member of the NRLA, it’s definitely worth joining.
2. Shop around for competitive landlord insurance
Landlord insurance should be a quick win to save money on. Insurance is a necessary evil that landlords have to pay for every year. And every year the premiums creep up. When one of my landlord insurance policies with Total Landlord Insurance was up for renewal recently, I was shocked that the insurance premium had increased by 29% from £302 to £391. This is for the same property without any claims, against a backdrop of inflation of around 8%.
To cut a long story short, I found a more competitive quote for a level of landlord insurance cover I was happy with which was £170 less than the original TLI quotation. If you have a portfolio of buy to lets, these types of savings can add up.
To find out more, take a look at my blog post how to shop around for competitive landlord insurance.
3. Book your safety checks online
Letting agents invariably add a mark up when they arrange gas safety certificates, EICRs and PAT-testing. It’s definitely worth shopping around as small savings add up.
OpenRent offer excellent rates – click here for more information.
How landlords can save money on property management
Property management is often a large area of expense for landlords, costing 10-15% of gross rental income. This makes a bit dent into a landlord’s profits.
For those with a smaller portfolio, self-management is an easy way to save money. Here’s a link to a blog post with tips on how to terminate your contract with your existing agent, and 6 practical tips to help you self-manage.
It’s harder self-managing with a larger portfolio, or with HMOs, which is where property virtual assistants such as Beam can help shoulder the administrative burden, for considerably less than managing agents. Here’s a link to a blog post in which I discuss how best to use property VAs to turn the high fixed cost of managing agents into a lower variable cost.
For on-site contract property management, Viewber is a great option. This is because they can do most property management tasks on a one-off basis.
>> Related Post: How to self-manage your buy to let
How landlords can save money on letting
Letting a property yourself using online agents will save you a lot of money and improve profitability as a landlord.
I highly recommend OpenRent’s Rent Now option, which for £49 includes the following:
- listing on Rightmove and Zoopla
- digital platform to manage communications with potential tenants
- processing of the holding deposit
- contract drafting & digital signing (and the ability to change their standard terms)
- deposit registration
- initial rent collection
You can also book referencing, the gas safety certificate, and EICR/PAT-testing as good value optional extras.
>> Related Post: How to choose good tenants
>> Related Post: How to self-let your buy to let
Landlords should keep their options open for the next refinancing
If you’re still on a low interest rate, if at all possible, now is the time to put some money aside to keep your options open when you next refinance.
One option is to use that pot of cash to pay down your debt a little when you next refinance. I know this goes against the received wisdom in the landlord community, where pulling money out when refinancing helps fund future deals. However, it makes more sense in a period of high interest rates. It may also help you pass the stress tests that reflect the higher interest rates.
And you’re effectively getting a tax free return by not having to pay interest on that part of the mortgage.
If interest rates come down in the future, you’d still be able to pull out equity then, assuming the property has held its value.
Increase the rent
Landlords are often very reluctant to put up rent, but with average wage inflation for the 12 months to July 2023 at 7,8%, an increase in the rent of around 7% would be entirely reasonable.
Any increase in rent also goes straight through to the bottom line, and will increase a landlord’s profitability.
Click here for my detailed guide on how to increase rents, which includes the latest regional rent data for single lets and HMOs.
Final thoughts
Despite record demand from renters, 2023 is a difficult time for landlords. Many are reluctantly reaching the conclusion they need to sell their low yielding properties.
However, for those landlords who can hang on and adapt to the new world, according to the latest RICS survey, rental price growth is now forecast to average just under 6% per annum over the course of the next five years. That’s the light at the end of the tunnel.
