In this first edition of Property Patter, I would like to touch on a topic that's seldom talked about in the business today.
There's this myth that the rising cost of rent serves as a mechanism to price tenants out of the market, forcing them into a situation where they can no longer afford to secure a decent home. But there's another way to look at it:
Landlords need to make a profit on their mortgage to make letting their property worthwhile. Essentially, the property shortage will get worse if a landlord cannot see a return. It's a vicious cycle.
A £400 per month mortgage cannot be placed against less than a £480 per month rent to work: the minimum margin needs to be 20% - and that's before you even consider interest rises, maintenance, void periods and other variables.
When you think about it, in any business, it is expected that a company sells an item for more than the cost price, otherwise, it wouldn't be a business. You wouldn’t see Coca-Cola selling ice cold cans of pop at your local shop for five pence or less, would you?
Rather than being demonised, landlords need to be encouraged and thanked for providing a housing option that otherwise wouldn’t exist, because contrary to popular thinking, renting a property is still a very cheap option. Here's why:
- You don't have to cover decor or maintenance costs, replacing worn out white goods or boiler issue costs
- You don’t have to worry about rising interest rates, solicitor fees, insurance costs and the like
- A tenant can move quite freely from contract to contract, while a homeowner pays colossal costs to move - and is at the mercy of the market at any given time
- A tenant benefits from the full support of a letting agent
- A tenant has their home certificated on a regular basis (e.g. gas and electricity)
- A tenant’s costs regarding a property are fixed, making it easier to budget
- Renting provides a greater level of choice and flexibility
5.4 million people now rent across the UK, compared to just 2.3 million in 2001. That’s an astonishing increase, and it’s expected to rise again by 2025.
Renting is an increasingly popular option amongst singles, couples and families alike so it’s imperative that more people have the financial ability to let their properties to people looking for a quality home.
Renting is a vital part of today’s culture and rather than focusing on the price of the rent, it’s more important to understand the costs that come with being a landlord. A profit has to be made to ensure a tenant can live in a safe, secure, warm and welcoming home, and that’s a fact.
Now you understand what goes into letting a home, I hope you will agree that it’s not a case of pricing tenants out of the market, it’s a case of pricing landlords in.