How Landlords Can Navigate the Rise in Inflation

house value

Experts predict inflation is set to continue for 2023, for at least another six months, with the latest CPIH figure revealing a rise of 9.2% in the 12 months until December 2022.

With the rental market feeling the effects of inflation too, London-based lettings agency JOHNS&CO is giving landlords a few pointers on how to navigate the current economic landscape that doesn’t just involve hiking up the rent.

Clynton Nel, Residential Director at JOHNS&CO, said: “Despite wages having grown at the fastest rate in 20 years, pay packets are failing to keep up with the current cost of living crisis. It is a good idea for landlords to explore any and all options to reduce their outgoings in relation to their investment. Rising market rents are well documented and most landlords welcome the demand led increases. Why wouldn’t they, having been subjected to numerous tax and legislative changes over the last few years? These changes have placed huge downward pressure on rental yields and overall viability of providing accommodation for renters and most recently the interest rate hikes across the mortgage market have added to that pressure.”

Firstly, JOHNS&CO recommend landlords consider both their long-term and short-term options to beat inflation. Despite forecasts predicting that inflation will lower in the second half of 2023, the economy is volatile and it is important to be prepared for further rises or a period of sustained higher costs when compared to the relatively low rates following the financial crisis in 2008

Landlords should explore mortgage lenders regularly, shopping around to identify if it is worth switching lenders for a better rate. There are many benefits of switching, particularly if you have been on the same deal for a number of years, you may find your current deal isn’t competitive and that you can in fact get a better interest rate. Or perhaps you want to overpay to clear your mortgage quicker and your current lender won’t let you do this without paying a hefty penalty.

In the short term, there are some easy steps landlords can take to manage rising inflation which will benefit them in the long run. Inspecting your rented property regularly, if you’re not doing so already, will mean that you can pick up on small problems before they become bigger and more costly. If the problems are caused by tenant activity, landlords then have the opportunity to give advice and ensure that the property is properly maintained.

It might otherwise be tempting to cut back on maintenance costs as you’re not living in the property itself, but there are some valid reasons to keep on top of maintenance with inflation in mind. If your tenants leave, you will need to re-let quickly at the best possible market rent. Regular repairs and periodical renovations will help protect and potentially improve the capital value of your investment – this can help you re-mortgage at lower loan-to-values (LTVs). Additionally, if you have spent time maintaining the property, then your tenants will be more likely to respect and do their own maintenance whilst in the property with your approval.

JOHNS&CO recommend landlords consider getting a range of quotes for maintenance costs in order to find the cheapest quote for the task – if you do find a cost-effective tradesperson then it’s a good idea to check the reviews to make sure the quotes aren’t too good to be true. Trusted and reliable tradespeople are worth their weight in gold.

Clynton adds “Many landlords opt for our full management service for this reason alone as it all but guarantees a vetted tradesperson with valid insurances and certification will carry out the work required. It also removes the time and hassle of arranging it all from the landlord.

If a tenant can’t afford to pay their rent due to high inflation, eviction is the worst-case scenario for a landlord but it is a difficult decision as they don’t want to be losing money. Usually rising inflation would result in an increase in rent but some landlords opt to keep their good regular paying tenants with more moderate increases that don’t match the steep rises seen in the market recently. Essentially, it boils down to affordability for both landlords and tenants.

JOHNS&CO also recommend landlords explore rent and legal protection insurance as there are some really good policies that help to reduce the risk and exposure that the current economic climate brings to landlords. It is important to note that as with any insurance the policy needs to be in place before any arrears begin.