How UK Landlords Can Increase ROI During These Challenging Times

The UK property market is facing challenges, with rising interest rates, economic uncertainties, and evolving tenant demands. However, even in these difficult times, there are several strategies UK landlords can adopt to boost their return on investment (ROI). From reviewing mortgage options to making strategic decisions about selling or improving properties, here are key ways landlords can increase their profitability.

1. Review and Refinance Mortgages

Interest rates have been steadily climbing in the UK, leading to increased costs for landlords, especially those on variable-rate mortgages. One way to counteract this is to review your current mortgage and explore refinancing options.

• Switch to Fixed-Rate Mortgages: Locking in a fixed-rate mortgage can provide certainty over repayments and protect you from future interest rate hikes.
• Seek Better Mortgage Deals: It may be worth consulting with a mortgage broker to find better rates. Even a small reduction in the interest rate can save you thousands over the life of the mortgage.
• Consider Offset Mortgages: If you have savings, an offset mortgage allows you to reduce the interest paid, as the savings balance is offset against your mortgage balance.

2. Increase Rents in Line with Market Trends

Rents in many parts of the UK have been rising due to high demand and a shortage of rental properties. As a landlord, it’s crucial to stay informed about market conditions and adjust your rents accordingly.

• Review Rental Prices: Ensure your rents are competitive but also reflect the market rate. Keeping rents below market value may reduce turnover but could also limit your ROI.
• Implement Incremental Rent Increases: Rather than imposing steep hikes, landlords can introduce small, regular rent increases in line with inflation and local demand, ensuring the property remains affordable while increasing income over time.

3. Energy Efficiency Improvements to Reduce Tenant Costs

With energy prices soaring, tenants are becoming more conscious of their utility bills. Making energy-efficient upgrades to your property can help attract and retain tenants while also enabling you to charge higher rents due to the increased value of the property.

• Upgrade Insulation and Heating: Improving insulation, installing double-glazing, or upgrading to energy-efficient boilers can significantly lower energy bills, making the property more attractive to tenants.
• Solar Panels: Installing renewable energy solutions, such as solar panels, can also reduce energy costs and improve the property’s value, offering a long-term ROI boost.
• Comply with EPC Regulations: As the UK tightens energy performance certificate (EPC) regulations, ensuring your property meets the necessary standards can prevent future penalties and help you sell at a higher price if needed.

4. Review Your Property Portfolio

With uncertainty in the housing market, it’s important to regularly evaluate your property portfolio to ensure all your properties are performing well.

• Sell Underperforming Properties: If a property isn’t generating enough income to justify its costs, or if it requires constant maintenance, selling it might be a smart move. The proceeds could be reinvested into properties with higher potential or even into a different market altogether.
• Diversify Locations: If your properties are all in one region, consider diversifying to other areas where rental demand is stronger or where properties are more affordable, leading to better yields.

5. Consider Furnishing Properties

In areas with a high demand for rental properties, particularly in city centres or near universities, offering furnished accommodation can be a way to increase rents. Furnished properties often attract higher-income tenants or short-term renters willing to pay a premium for convenience.

• Higher Rent Premiums: Furnished properties can typically command higher rents, especially from professional tenants, students, or corporate clients looking for short-term lets.
• Tax Benefits: In some cases, the cost of furniture can be written off against tax as a business expense, further improving your ROI.

6. Utilise Tax Relief and Deductions

It’s essential to ensure you’re taking full advantage of all tax relief and deductions available to UK landlords.

• Mortgage Interest Tax Relief: Though mortgage interest tax relief has been reduced, landlords can still claim a 20% tax credit on mortgage interest. Ensuring you’re getting this relief can reduce your tax burden.
• Capital Allowances: If you make improvements or renovations to your property, some of these expenses may be deductible, which can improve your ROI.
• Claiming for Maintenance: Regular maintenance costs, such as repairs and replacements, can be deducted from your tax bill, reducing your overall liability.

7. Expand Your Tenant Demographic

Widening the pool of potential tenants can help reduce void periods and increase rental income.

• Consider Short-Term or Holiday Lets: Platforms like Airbnb have made short-term letting a viable option for landlords in tourist-heavy areas. While management can be more intensive, the income potential can far exceed that of long-term tenants.
• Attract Professional Tenants: Offering amenities like high-speed internet, modern fixtures, and well-maintained communal areas can attract professional tenants who are typically willing to pay higher rents.
• Pet-Friendly Properties: With more tenants looking for pet-friendly homes, allowing pets in your property could increase demand and reduce vacancy periods.

8. Improve Tenant Retention

Keeping reliable tenants for longer periods reduces turnover costs and vacancy rates, which ultimately improves ROI.

• Build Strong Relationships: Providing a responsive and professional service to tenants can encourage them to stay longer, reducing turnover costs such as cleaning, marketing, and re-letting fees.
• Offer Incentives: Consider offering small incentives such as free Wi-Fi or a discounted rent period to encourage tenants to sign longer leases.
• Proactive Maintenance: Ensure that maintenance is handled promptly to keep tenants happy and to avoid expensive repairs later down the line.

Conclusion

Increasing ROI during these challenging times requires UK landlords to be proactive, flexible, and strategic. Whether it’s optimising your mortgage, making energy-efficient upgrades, reviewing your portfolio, or adjusting your rental strategy, each small change can lead to significant improvements in profitability. By staying informed and taking action, landlords can not only weather the current economic challenges but also emerge stronger and more resilient in the long run.