In our new weekly series, readers can email in with any financial dilemma and enter the Money Moral Maze. If you have a dilemma you would like us to look at please contact us at money@inews.co.uk.
The Dilemma
I am a landlord with one property in north London. It is a two-bed ground floor flat with a garden, and I currently rent it to a couple in their 20s for around £1,800 per month.
The tenants have lived there for four years and they have been good at looking after it. They’ve kept it clean and tidy, and one area they’ve really improved is the garden. They’re both keen gardeners and have planted vegetables as well as flowers, and set up a BBQ on the patio.
I recognise I am lucky to have good tenants and have never raised the rent in all the time they have lived there.
However, my mortgage deal runs out early next year. I will end up paying a higher rate, and my profit will fall massively, to the point where I will making little over £100 per year on my calculations, once tax, repairs and more have been factored in.
Part of me doesn’t want to raise the rent, as they’ve been excellent, but at the same time, I’m not a charity. There seems little value in keeping the flat if it doesn’t turn me a healthy profit, which I am planning to save to pay for my care later in life.
Callum Mason, i money and business reporter argues the case for ‘No – they shouldn’t up the rent’
You sound very lucky to have landed on some excellent tenants, and likewise they are lucky to have never experienced a rent increase. Bar the pandemic period, rents have been increasing steadily since 2019, and in all honesty you could probably have charged more and got away with it. You certainly could now, as rents are soaring.
However, you mention your tenants are very good, and are improving your property. If you were to up the rent and they were to move out as a result, you might end up with far worse ones, and this could incur extra costs for you if they did not take care of the property.
You mention only making a £100 per year profit once your mortgage goes up, but I assume this is without factoring in property-value growth. The fact is that, particularly in London, bar the current period of falls, house prices have shot up in the past few years, and therefore you are sitting on an asset that will be worth far more than you bought it for, with the mortgage being paid for you.
If your tenants are improving the flat, this only adds to that value – garden properties in London are worth their weight in gold!
So all this being said, is it worth the extra money to upset the well-balanced situation you have? I would lean towards no.
Jessie Hewitson, i money and business editor argues the case for ‘Yes – they should up the rent if they need to’
There is no question that the situation for renters is dire – but it’s also true that if landlords like yourself who clearly care about tenants can’t turn a profit, then things will get even worse. So yes, you should up the rent if it’s going to be unfeasible for you to continue as a landlord otherwise.
While it’s true you are likely to make future returns if you sell the property, you also need to make money in the here and now. Very few smaller landlords can afford to lose money and keep going.
Tenants need landlords. The main reason rents are going up is because of interest rates rising, pushing up landlord costs, which in turn, has pushed up rents. But another factor is that landlords are selling up, reducing supply and increasing competition.
For many landlords (particularly those who bought in recent years when prices were high) the numbers don’t work up any more, and it sounds as though you are in this camp.
While it’s fantastic that your tenants have kept the property in great condition, the reality is if being a landlord is not sustainable for you without increasing the rent, then you would have to leave the market and your tenants would be left looking for a new home.
It’s commendable you are thinking about your tenants first, and this is an indication that you are the kind of landlord we need to keep in the market. It may be worth a conversation with your tenants to explain the situation. They will know that if they had to re-enter the market as it is now, they would likely struggle to get a comparable deal.