Why tenants should be concerned by landlord cost cutting

Property investors are looking to trim their spending, but it may be tenants that pay the price, even as they get more rights.

The last few years have been tumultuous for people that look to invest in property.

It seems like every time there is a Budget or Autumn Statement from the Government, there is another new announcement of a change in the rules which will make it more difficult for landlords to profit from bricks and mortar.

This week also saw a new law come into force, allowing tenants to sue landlords that don't make essential repairs.

The Home (Fitness for Human Habitation) Act doesn't include new obligations for landlords but does mean tenants can take landlords to court, rather than waiting for their local authority to take action.

Some landlords have opted to sell up - a study from the National Landlords Association last year found that as many as one in five landlords were looking to ditch at least one investment property.

And new research has suggested that even those who have held onto their rental properties are looking to save money elsewhere, which may spell bad news for tenants.

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Where can I save money?

A report on the landlord sector by Kent Reliance has found that more than a third of landlords (36%) are looking at ways to reduce the amount they are spending on their portfolio.

On average, the study found that they are looking to reduce their spending per property by around 6%, but it’s the ways that landlords are hoping to cut that spending which will be a worry for those that rent their home.

Just under half (46%) of landlords suggested that property upkeep and maintenance were areas they could cut costs, while more than a third (38%) noted that they may trim spending on property improvements.

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Bad news for tenants

This is obviously going to be a worry for tenants. Sure, there are ways that landlords may be able to save cash on upkeep that isn’t going to really lead to any noticeable impact on the overall standard of the property.

But let’s be honest, if landlords are looking at property upkeep as a ripe area for saving cash, it’s inevitable that some tenants will have to put up with properties that need work but with landlords reluctant to pay up.

Similarly, if landlords aren’t coughing up for maintenance, then it stands to reason that rental properties are more likely to develop problems in the first place.

Of course, there are certain obligations that landlords have to stand by when it comes to letting a property. You can check them out in our guide: Tenant rights: what you should know about contracts, deposits, rent rises, repairs and more.

If you feel your landlord is shirking their duties, then it's important that you don't stand for it and instead notify the authorities.

In more bad news for tenants, a decent portion of landlords are looking at ways to make more from their investments rather than simply trim costs in order to get the sums to add up. The study found that one in five landlords are looking to increase rents.

According to a separate study from HomeLet, the average rent has already jumped 3.8% over the last 12 months to £940, so it’s not like tenants aren’t already on the receiving end of above-inflation rises.

That figure is an average: in the South West, rents jumped by 7.7%. And, across the UK, tenants now spend almost a third (31.1%) of their income on rent.

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Cutting the cost of mortgage interest payments

It’s also worth noting that almost a third (29%) of landlords said they were looking to cut their outlay on mortgage interest payments.

This is another area that the Government has targeted in order to make property investment less attractive, by shifting the way that landlords can get tax relief on their mortgage interest payments.

Previously, landlords could deduct mortgage interest payments in their entirety from their revenues, alongside other expenses, and then would only have to pay Income Tax on the remaining profits. For many landlords, this means they would deduct their entire repayment, as they had opted for an interest-only deal.

However, this is being phased out, to be replaced with a flat 20% tax credit instead. In the 2017-18 tax year, landlords were limited to claiming tax relief on 75% of their mortgage interest, while this year it has fallen to 50%. From April it drops right down to 25%.

This is going to have a significant effect on the bottom line for many investors, so it’s little wonder that it’s something plenty of landlords are looking to address.

For more on ways that landlords can cut their costs, check out our guide: Landlords: how to cut your buy-to-let costs and fees.