PRS – The Cost of Being a Landlord and The Benefit to the Economy

By | 21 August, 2017

Buy to let PRS - BTL

As a landlord, we know you already understand the expenses relating to your provision of property to the Private Rental Sector (PRS).

But, recent research from Buy-to-Let (BTL) specialists, Kent Reliance, has calculated average data by region. The data also put a figure on just how important BTL landlords are to the economy.

We’ve picked out the key details and put them into context for anyone in the BTL business.

Exactly How Much Running a BLT Property Costs

For most BTL landlords, the biggest cost of running a rental property or portfolio, is the initial purchase of the property. Second to that – in many cases – is the monthly mortgage repayments. But, to maintain the property and keep it in good order to attract tenants, there are other regular costs, too.

They are:

  • Letting agent fees.
  • Property maintenance/upkeep.
  • Utilities.
  • Insurance.
  • Licensing Fees.
  • Ground rent.
  • Legal/accounting.
  • Service Charge.
  • Voids.

Kent Reliance calculates the average annual cost of all this, per property across the UK, is £3,632 or 34% of the total rental income. This, of course, changes from region to region.

The highest percentage of rental income spent on the annual upkeep of a property is in Wales. The £2,211 running costs there, equate to 41% of the income they generate. At £6,535 running costs per year, meanwhile, London landlords pay the smallest rental income proportion of 32%. That’s because average rents in London are high when compared with the rest of the country.

Here is the complete regional breakdown of running costs calculated by Kent Reliance.

PRS Contribution to UK Economy

Moving on from the cost of running a BTL property to how that – and related spending – benefits the economy, the numbers might come as a surprise. The PRS sector provides a whopping £15.9 billion, per year. The revenue that benefits the broader economy from the 5.3 million PRS properties has more than doubled in 10 years from an estimated £7.1 billion in 2007.

The breakdown of where that money comes from is as follows:

  • £5.5 billion from property upkeep, maintenance and servicing through use of tradesmen, builders and cleaners.
  • £1.7 billion on service charges and a further £332 million in ground rents paid to freehold owners and property management businesses.
  • £963 million in insurance payments.
  • £904 million on utilities.
  • £1.1 billion on associated ‘other costs’.
  • The Treasury receives the remaining £15.9 billion in the form of taxes.

This shows how valuable the PRS is to the economy. That begs the question, why is the government so tough on an industry that provides much needed homes and supports the broader economy too?

Landlords to Review Spending on running Costs

With the additional financial pressure BTL landlords are now under, it seems some landlords have had enough. The report also shows 36% of landlords have already reduced, or plan to reduce their spending on running their BTL properties.

Much of that will come from remortgaging as a way to reduce the monthly repayments. But, with stricter new lending rules now in place, this path isn’t open to all. Some 17% of landlords have zeroed in on maintenance and the upkeep of their properties as a way to reduce costs. Cuts there will immediately hit associated tradesmen, builders and cleaners. The state of properties will also likely reflect those cuts, leaving tenants to pay the same, or more rent, for a property that’s not as well maintained as it should be.

It appears the government prefers the immediate payments through tax rises over the broader economic benefit of the PRS as a whole. And in the end, it’s the tenants who will bear the brunt of higher rents and poorer quality homes.

 


Alessio Tondo & Fabio Tarantino
Two ordinary guys who turned their passion into a business.
Co-Founded INCRENT
Rent 2 Rent specialists, London
Focused on how to Increase Your Rental Income.

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