Buy-to-let  

BTL profits drop as landlords see £7.9bn in rent cuts

BTL profits drop as landlords see £7.9bn in rent cuts

Buy-to-let profits slimmed further last year as 46 per cent of private landlords cut their tenants’ rents by an average of £6,500 during the height of the pandemic - a total of £7.9bn.

The research, published by Shawbrook Bank, follows another report which found a fifth of landlords are considering selling all or part of their portfolios as tax changes and increasing regulation cut deeper into buy-to-let investors’ bottom lines.

Rent reductions lasted four months on average last year. Portfolio landlords – those owning four or more properties - were more likely to have agreed a rent reduction with their tenants compared to single property landlords.

While some 17 per cent of portfolio landlords admitted to missing out on income from rent cuts, just 12 per cent of single property landlords admitted to the same.

The majority (59 per cent) of landlords who gave their tenants rent reductions did this for more than one of their properties.

“No amount of foresight could have prepared landlords, or tenants, for the impact of the pandemic,” said John Eastgate, Shawbrook Bank’s managing director for property finance.

He observed: “In many cases landlords were initiating the conversation around cutting rents to ease their financial burden.”

Alongside rent cuts, around half of landlords also claimed a further £7,500 on payment holidays last year, which saw renters able to delay rental payments for up to three months, before agreeing on a repayment plan with their landlord. 

In total, 28 per cent of landlords gave their tenants a full rent payment holiday. 

Despite buy-to-let profits slipping further, Eastgate said: “There is a strong argument to suggest that landlords in regional locations have never been in a better position to profit, while city centres will continue to represent good value as workers head back to the office, even if it is on a part-time basis.”

Steadily reducing tax breaks and rental yields for landlords, combined with the more recent decline in rental prices due to the pandemic, have all contributed to a fall in value of buy-to-let portfolios in recent years.

In London, the average gross rental yield was 3.8 per cent in December 2020, compared with 5.9 per cent at its September 2012 peak, according to Zoopla. 

As for regulation, in October 2018 legislation came into force which makes it harder for landlords to evict tenants even if they’re not paying rent, exposing landlords to the potential of missed mortgage payments.

Another factor set to impact landlords’ bottom lines in the near future is the government’s green homes initiative.

In October, the government launched a consultation outlining its proposals to upgrade as many homes as possible to an energy performance certificate (EPC) Band C by 2030.

Data released by the Office of National Statistics suggests these improvements work out to £7,646 per privately rented property - meaning it could cost landlords a collective £21.5bn.

ruby.hinchliffe@ft.com