Being a landlord in 2024: challenges, opportunities and profitability

 

  •  3 minutes

3 minutes

The buy to let landscape is ever evolving and landlords continue to face new challenges. However, there are plenty of opportunities too, read on for more on the current profitability of being a landlord, current challenges and the significant legal updates that all landlords need to be aware of this year.

Profitability in 2024

Despite the complexities of the rental market, being a landlord can still be profitable in 2024. The demand for rental properties remains high and in many areas property prices continue to outpace the average income, making homeownership less attainable for many.

According to research from Pegasus Insight*, over 8 in 10 landlords reported strong tenant demand in Q2, which is helping to drive business confidence. On average 82% of landlords said tenant demand was 'strong' and 40% reported demand was 'very strong'.

According to Pegasus Insight* the typical portfolio is estimated to be worth £1.7m, generating a gross rental income of £71k per year. With an average portfolio size of 7.6 in Q2, this equates to the typical property being worth £224k, generating £779 a month in rental income. Over 8 in 10 landlords are profitable, with this more common for the unencumbered and yields are now at their highest level in 10 years. 16% of landlords reported they made a 'large profit', 70% said they made a 'small profit', and only 6% of landlords reported a 'loss'.

However, profitability is increasingly influenced by location, property type, and the ability to adapt to market trends. High demand areas such as London, Manchester, and Birmingham often offer the best returns, though they come with higher entry and running costs. Properties that cater to specific market segments, such as students or professionals, can also yield higher returns if managed well.

Landlords who invest in energy-efficient upgrades can potentially increase profitability. Energy Performance Certificate (EPC) ratings are becoming more critical, not just for compliance but also for attracting tenants who value lower utility bills and environmental sustainability. Improved EPC ratings can also enhance property value over time.

Landlord challenges in 2024

  1. Rising Costs

    One of the main challenges landlords face is the increasing cost of maintaining properties, around 22% of gross rental income is spent on portfolio maintenance. Inflation and supply chain issues have driven up the cost of materials and labour, making repairs and renovations more expensive and there's also the rise in interest rates we have seen in the past year. There are a few things you can do to help reduce running costs though, take a look at our top tips

  2. Tenant Expectations

    With higher costs, come higher tenant expectations regarding property standards. Well-maintained, energy-efficient homes with reliable internet connectivity and modern amenities are in demand. Meeting these expectations can require significant upfront investment, but this is crucial for reducing vacancy rates, keeping tenants safe and happy and achieving higher rental values.

  3. Regulatory Compliance

    As a landlord, you need to stay on top of numerous and often complex legal requirements, including smoke and carbon monoxide alarm regulations, as well as knowing your legal responsibilities in general. Non-compliance can result in hefty fines or legal disputes, which can be both costly and damaging to your reputation as a landlord.

  4. Legislative Changes in 2024

    Several legislative changes in 2024 impact UK landlords. These changes reflect a broader trend towards increasing tenant protection and ensuring higher standards in rental properties. With a change in Government, we understand you may feel uncertainty. Regardless of the political landscape, The Mortgage Works is committed to supporting and championing you to ensure a thriving Private Rented Sector.

  5. Renters (Reform) Bill

    The Renters (Reform) Bill is one of the most significant legislative changes this year and the Labour government have expressed that they still have plans to abolish Section 21. The Bill aims to create a fairer rental market by abolishing 'no-fault' Section 21 evictions and improving the grounds on which landlords can regain possession of their properties. The Bill also introduces a new Ombudsman scheme to handle disputes, providing tenants with more recourse against poor landlord practices.

  6. Energy Performance Regulations

    New energy performance regulations have been introduced, requiring all rental properties to have a minimum EPC rating of C by 2028.

    While this may seem distant, as a landlord you it's wise to start upgrading your properties now to spread out the cost and avoid potential penalties. Grants and loans (opens in a new window) are available to assist with these improvements, but planning and executing these upgrades in a timely manner are essential.

    Being a landlord in 2024 offers both opportunities and challenges. While the potential for profitability remains strong, it is important that as a landlord you adapt to market demands by managing increasing costs effectively and staying compliant with changing regulations. Landlords who invest in their properties and stay informed about legislative changes are best positioned to succeed.

    By prioritising tenant satisfaction and regulatory compliance, you can navigate the UK buy to let market in 2024 and continue to thrive.

    *Source: Pegasus Insight Landlord Trends Report, Q2 2024, sample of 799 landlords who are current members of the National Residential Landlords Association.