Landlord blog: Are increasing council charges making letting property unprofitable?

Published: 06/03/2014

In his latest blog, Head of GW LET (Landlord Empowerment Team) Rob Denman discusses the increasing charges local councils are starting to impose on landlords and the impact they are having on profitability.

“There’s always been a real misconception that being a landlord is an easy way to a quick buck. However, being a landlord can be a costly business. It’s very rare that landlords make a killing in the initial stages of letting property. Landlords have to contend with rent arrears, void periods, repair and maintenance costs as well as marketing and administration charges. Yes you definitely have to be in it for the long game.

“And now these margins are getting squeezed further with councils applying new charges on private landlords which could see any annual returns vanish.

“The first is what’s known as ‘selective licensing’ which is where councils encourage landlords to sign up to a register for a fee. Those who do are then ‘promoted’ as ‘good landlords’. I use this in the loosest sense of the word as councils do not do any active promotion however.

“Licenses tend to cost around £450 to £700 but could cost as much as £1000.00. It is important to remember this is on a per-property basis and covers a five-year period. This means, based on a gross yield average of 6 per cent and the average monthly rent of £720, the £520 return is more than wiped out.

“The overall aim of these licenses is to improve standards in the private rental market. But it’s only compliant landlords who are signing up in the first place – rogue landlords can continue to operate under the radar - so I share landlords frustrations and can understand why many see this as little more than a money making exercise.

“The other financial bug bear costing landlords is council tax. Before April 2013 empty, unfurnished properties were known as “Class C exemptions” and, as a result, landlords were entirely exempt from council tax for the first six months and then would only be liable for half therefore. After all void periods are costly enough.

“But this grace period ended last April when local authorities were allowed to scrap this allowance, many of whom did. As a result landlords are now responsible for the full tax rate.

“The real issue with these increasing council charges is the impact they are having on profitability. While letting property is a long term investment, it also has to be sustainable for the short term. Should landlords incur further financial charges then I do fear some landlords will find the situation unprofitable resulting in even fewer private rental properties to meet demand.”

Rob Denman is a solicitor and Head of GW LET (Landlord Empowerment Team), specialising in such landlord legal issues as rent arrears, tenant eviction and tenancy deposit disputes. In his spare time Rob enjoys watching football and running. He is currently training for his second half marathon.

Content correct at time of publication