How can landlords maintain strong portfolio growth and mitigate risks to income during the current cost of living crisis?
The cost of living crisis has been brought about by increases in energy costs and the price of household shopping items. Heating and eating are important needs for any human being, and not being able to afford them is becoming a real possibility for large swathes of the UK population.
This has a knock-on effect for UK landlords, who may well be faced with tenants who may as a result be struggling to afford their rents and other bills, as well as the energy provided in the upkeep of a home.
The last thing any landlord wants is to evict a tenant, but they also don’t want to be out of pocket themselves because the tenant can’t afford to pay them. With mortgage rates also increasing, the landlord’s own costs may be greater, which would usually result in an increase in rent. In current conditions, some landlords may be reluctant to pass on this cost to their tenants, and may feel the need to absorb it themselves somehow.
It is possible to arrange rent protection insurance, which guarantees to cover a landlord for loss in rental income. Some products can also include legal expenses and advice. This is only relevant to domestic landlords, not commercial, and you will likely need to provide a tenant reference when you apply for cover, so the insurers can try to gauge how much of a risk they are.
If you currently offer your tenancy with bills included, you will likely see a deficit in your profit, as costs continue to spiral. You will also be unable to monitor how much energy your tenants are using, and put a block on them using more than you are willing to pay for.
However, on the other hand, properties that have bills included will appeal more broadly to the rental market, as tenants will be aware of how much they will be paying each month and don’t need to shop around themselves to try to get the best deals, making it easier for them to budget.
As things stand, rental properties only need an EPC rating of E or above. In 2025, this is set to increase to C or above. By making your property and appliances more energy-efficient now, you will reap the rewards when it comes to the hike in energy costs.
If you plan to do some major work on the property and install particularly environmentally-friendly features, then you may decide to release some equity in your property, in order to be able to afford the changes. This will free up some extra finances which you will likely find useful yourself, as conditions continue to bite, and it could save up to £725 a year in energy costs.
There is financial help available for landlords and tenants, which will soften the blow of the cost of living crisis slightly. These include such things as the Energy Support Scheme, Cost of Living Payments for those on benefits, with disabilities or pensioners, various winter payments including the Warm Home Discount Scheme, Cold Weather payment and Winter Fuel payment, as well as the recent Council Tax Rebate for properties in Bands A-D.
It may be difficult to keep track of these various schemes, as well as your own expenses, with costs rising and the support available to combat it.
Using our simple accounting software for rental properties will keep all important figures at your fingertips. The power of software for financial management should not be underestimated, especially if you have several properties in your portfolio and if they are all eligible for different streams of financial help.
Some landlords have previously not insisted on rent guarantors for their properties and their tenants’ rent. This is a usual demand for the likes of student properties (where their parents are usually relied upon to pay the rent), but is less common for professionals who have a job with a steady income.
But, sadly, nothing is guaranteed anymore, and circumstances are changing rapidly. Redundancies are increasing as businesses struggle to stay afloat in the ongoing crisis, meaning that job with a steady income is looking less steady by the minute. Opting to ask for a guarantor in your rental agreement means the onus will not be left on the landlord to make up any rental arrears.
On the plus side – it isn’t all negative for landlords – the demand for rental properties could be higher as people who currently own their own homes may be unable to keep up with their mortgage costs and may be forced to sell, or worse.
Admittedly, this isn’t a situation that anyone wants to find themselves in, or wish on anyone else. But, it does mean that rental properties will be at a premium, and it will be a landlord’s market to dip into.
Alternatively, some tenants may choose to downsize from larger properties to smaller ones. This could open up a lucrative investment stream for landlords who have a selection of one or two-bedroom properties on their lists, which have been traditionally harder to let than those with three or more bedrooms.
It isn’t all doom and gloom for landlords, but it pays to listen to your tenants and be empathetic to their situations. The cost of living crisis is causing sleepless nights for many. By offering some form of agreement or compromise and being fair in your dealings, you will obtain your tenants’ trust and they will be more likely to put their rent at the top of their payment priorities.