Becoming a landlord has been an aspirational achievement for generations, representing a form of financial security — and what appears to be a relatively simple route to wealth. But landlords have been struggling in recent years, squeezed on both sides by an increasingly negative public opinion and by economic shifts that could threaten the profitability of letting homes.

While the demand for rental homes continues to rise, budding landlords may find it harder than ever to make ends meet and grow their finances. With this in mind, is it still financially worthwhile to let homes to others?

Here, we will look at some of the mechanisms behind shifts in the housing market, coupled with the costs of home rental and some key tips for making lets profitable.

Changes in the Housing Market

The key factor behind the increased scepticism over the accessibility of becoming a landlord stems from changes in the UK’s housing market over the last two years. A combination of high demand for properties and a temporary moratorium on stamp duty led to a rush on the markets, and some of the biggest increases in property values in recent memory.

As a result, the average home is now around 20% more expensive than it was before the pandemic. This has pushed up the cost of purchasing a home significantly, pricing out first-time buyers and increasing demand for rental properties in the short term. However, the rise has also tested buy-to-let landlords, who need to stump up higher deposits in order to make a rental investment.

Up-Front and Running Costs

The cost of a deposit for a new home is just one up-front cost for new landlords to consider. There are also the costs attributed to decoration and refurbishment, required to bring the home up to code for new tenants.

Ongoing costs should also be considered, but some of these may save money in other areas. For example, landlords might use a letting agency to handle the legal and logistical operation of their rental, sacrificing a small percentage of rental income for devolved responsibility.

But the biggest turn-off for new landlords comes as a result of recent changes to buy-to-let mortgages. Since 2020, the tax rates for repayment have increased significantly for some — leaving those on interest-only repayment plans with a much heftier bill than before. This can cut deeply into profits, especially after significant expenditure in year one of rental.

Tips for New Landlords

The market may be primed for landlords to guarantee long-term income, but the market as it stands also threatens to severely stunt any profits for non-established landlords in their first years of letting. As a landlord, your operating expenses should never exceed 70% of your rental income — and your rental income should never be considered passive.