Stop blaming 'greedy' landlords for rising rents

by Emma Lunn on 07 November 2011  |  20 comments
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Greedy buy-to-let landlords traditionally get the blame for rising rents and, with rents at a record high, never more so than now. But are landlords simply cashing in on the greater demand for rental properties - or are other factors at play?

The problems faced by tenants are well documented. Rents are rising and becoming unaffordable for many ordinary families and for single professionals who don’t want to share with other renters. Just  last month research from LSL Property Services showed that the average rent reached £718 in September, 0.7% more than the previous record high seen in August.

But it’s not a case of simple greed. While landlords are benefiting from low interest rates and a decent choice of buy-to-let (BLT) mortgages, many have to pay managing agents and/or lettings agent fees – and these don’t come cheap.

I should know - I’m a landlord myself. And I’m sick of being labelled as ‘greedy’ when I have such high, rising costs. It’s time to reveal the three real reasons why rents are rising:

1) Managing agents

For the uninitiated, managing agents become part of the equation if a landlord owns a leasehold flat. They’re employed on behalf of the freeholder (who owns the building) to manage the upkeep of the communal areas of the property such as staircases, lifts, gardens, roofs and car parks. The cost for this upkeep is split between the flat owners or leaseholders in the form of a service charge.

It sounds fair enough but some managing agents can be a law unto themselves when it comes to the service charge, how much it is and what it covers.

Many leaseholders find that fees rise inexplicably every year, and charges often bear no relation to the work involved. For example, the managing agents of the flat I rent out charge me £98 a year for a “license to sublet”, a piece of paper giving me written permission to sublet my own flat.

Needing the agent’s permission to rent out my own property is one issue but £98 bears no relation to the real cost of printing out a sheet of paper and sending it to me.

Meanwhile some managing agents using their own ­companies to provide hugely expensive insurance and ­maintenance services.

It’s not just landlords that have to deal with managing agents and their rip-off fees – pretty much everyone who owns a leasehold flat will have a service charge horror story to tell you. But the difference is landlords will factor in rising service charges when they calculate the level of rent to charge to tenants – so rising service charges will mean rising rents.

2) Letting agents

Unlike managing agents, landlords can choose whether to use a letting agent or not. Letting agents advertise the property and find suitable tenants. They charge the landlord a percentage fee for either just finding a tenant and arranging for them to move in, or managing the property and dealing with any problems that crop up too.

But they don’t come cheap. Letting agents typically charge 10% of the annual rent just to find a property or 15% of the annual rent to fully manage the letting.

On top of that are a huge number of abstract fees that, as with managing agents, bear no relation to the work involved.

Commonly both the landlord and tenant are charge anything from £200 upwards between them for a contract despite the fact you can find a standard Assured Shorthold Tenancy agreement for free online.

And if a property is full managed, don’t expect the letting agents to shop around for the cheapest quote for any work that needs doing. They won’t – they’ll be straight on the phone to their mate the builder/plumber/electrician who’ll bump up his fee accordingly.

The costs don’t stop there either. Once the initial tenancy period has expired, letting agents charge landlords renewal fees whether they have played any part in persuading the tenant to stay in the property or not.

So, naturally, landlords will take letting agents’ fees into account when setting rent levels – so rising lettings agents’ fees will mean rising rents. This can be a double whammy for tenants who will be forced to pay letting agents certain fees too for contracts, credit checks and references.

3) Buy-to-let mortgages

Landlords also need rent payments to cover their mortgage repayments by a certain percentage in order to qualify for a BTL mortgage. For example, some BTL mortgages require the rent to be 130% of the mortgage so if your mortgage is £1,000 a month you’ll need to be able to get a rent of £1,300.

The good news is there is plenty of choice of mortgages for BTL landlords at the moment. Below are some of the best: 

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

More: These cheap mortgages won’t be around for long | Rates fall again on buy-to-let mortgages