Surviving the cost of living crisis: The ultimate guide for landlords - Total Landlord Insurance

June 27, 2022
Total Landlord Insurance
Surviving the cost of living crisis: The ultimate guide for landlords - Total Landlord Insurance

As we write this guide in June 2022, inflation in the UK has just tipped over nine per cent – the highest level for over 40 years. With the Bank of England base interest rate at 1.25 per cent and inflation significantly above the Government’s target of two per cent, people’s savings are dropping in value. Another reason why inflation is up is that wages have actually risen rapidly over the last year.

The Office of National Statistics shows that average total pay growth for the private sector was 6.2 per cent from December 2021 to February 2022 but only 1.9 per cent for the public sector. At the other end of the scale, finance and business services reported the largest growth rate of 9.8 per cent.

So although for some their wage growth is well behind the rate at which prices are rising, making daily life less and less affordable, this isn’t the case for every tenant and it’s partly why rents have been able to rise rapidly over the last 12 months – albeit from quite low rates during the pandemic.

This dramatic increase in the cost of living is currently being driven by energy and fuel prices. People are having to spend more on heating their homes and travelling for work and leisure, meanwhile, as the cost of heating premises and transporting goods rises, businesses are having to raise prices to try to offset their own reduction in profits. That’s increasing prices for consumers on everything from food and clothing to furniture and building materials.

Our guide covers:

  • The financial support the Government is providing
  • The current shape of the property market
  • What landlords should do to keep costs under control
  • How landlords can help tenants
  • Working with a letting agent

What financial support is the Government providing?

In his spring statement in March 2022, the Chancellor announced three measures to help with the rise in energy and fuel costs:

  1. Fuel tax was reduced by five pence per litre with immediate effect
  2. The supply and installation of energy-saving materials – such as solar panels, heat pumps and roof insulation – has been given a temporary zero rate of VAT, reducing the cost of making homes more energy efficient for the next five years. That should be particularly helpful to landlords who need to make improvements to make sure their property meets the proposed minimum EPC rating of C for all newly-let properties by 2025
  3. The Household Support Fund that local councils can use at their discretion to help households struggling to pay utility bills and afford food, has been doubled, to £1 billion

And to help particularly those on lower incomes:

  • Although National Insurance contributions have gone up by 1.25 per cent, PAYE workers only start paying it once they’re earning more than the personal allowance of £12,570. That rise from the previous threshold of £9,568 means those earning a low wage could be around £300 a year better off
  • While it’s currently not expected to take effect until 2024, the Government has promised to cut basic rate income tax by one pence, which will mean a real rise in take-home pay

The property market is in good shape

Despite all the financial challenges of first the pandemic and now the spiralling cost of living, the property market, so far, has survived well.

According to the Land Registry, average property prices as of March 2022 were up 9.8 per cent year-on-year and 0.3 per cent higher than in February. And for the previous year – that’s the 12 months to March 2021 – the annual increase was also nine per cent. In real terms, the average house price has risen by £45,752 since the start of the pandemic – great news for landlords in terms of equity growth.

Rents have also been climbing. Zoopla’s Rental Index indicates that newly advertised average UK rents to the end of March 2022 were 11 per cent higher than last year.

  • Increases were highest in London, where rents rose by 15.7 per cent in the year to the end of March
  • Newly advertised rents have increased by only six per cent in Scotland, although the Office of National Statistics suggests rents, which include existing tenants, have increased the most versus other countries, growing by 2.9 per cent in the 12 months to April 2022 and the highest annual growth rate since records began in 2012
  • The average newly advertised UK rent now stands at £955 per calendar month

This shows that the average landlord has been able to raise rents more-or-less in line with inflation over the past couple of years and it suggests that tenants have so far been able to afford to pay more.

However, with the domestic energy cap having increased substantially in April and the UK energy watchdog Ofgem saying that the price cap could rise again from October.

And with inflation showing no signs of slowing, landlords and tenants are undoubtedly going to feel the financial squeeze far more over the next year – and maybe a little longer.

What should landlords do to keep costs under control?

As costs increase across the board, inflation is impacting buy to let, just as it will every business that buys products and services. Some of the key costs you’ll see rising for property investment, lettings and management are:

  • Materials and labour costs for repairs, renovation and refurbishment
  • Maintenance services, such as cleaning and gardening
  • Fees for professional services, such as legal work and surveys
  • Mortgage interest rates

Here are five steps you can take right now to help you deal with increasing costs and protect your rental profits:

Landlord cost of living crisis

1. Check you’re charging the right amount of rent

Ideally, you should always aim to increase your tenants’ rent in line with inflation to make sure it continues to be ‘worth’ the same. So, if you haven’t reviewed your rents within the last year, it’s definitely time to do that now. For some expert advice and information on how to work out what you should be charging, check out our article: how much rent to charge? Some things to consider.

However, given the financial pressure that many tenants will be under, particularly those on lower incomes, you simply may not be able to raise their rent by anything like nine per cent – if at all.

This is because, although it’s ideal to raise rents in line with inflation, the reality is that typically rents rise in line with wages, so although rents are rising rapidly now, this is likely to fall back over the coming months.

What it means though, is that it is even more important to keep buy to let outgoings as low as possible, while ensuring you still get value for money.

2. Make sure you have a detailed breakdown of all your expenditure

Before you can tackle your outgoings, you need to know exactly what they are and when and how they’re being accrued.

As well as payments for services, maintenance, etc., remember to include all your own administrative costs and expenses related to running your property business, such as traveling to and from your let, if you self-manage.

Is there anything you could cut back on or renegotiate?

Even if you can’t reduce regular monthly costs at the moment, plan ahead.

See if you can agree fixed prices for services and labour for the next 12 months, so that you could effectively be getting a good deal later this year, if inflation continues to rise as predicted.

Even if you’ve already reviewed your expenditure in the last few months, it’s worth doing again, given that prices are increasing so rapidly.

One important thing to check is that your landlord insurance policy is index-linked, so that you can be confident the value of your cover will rise in line with the cost of living.

To understand more about how index linking relates to you as a landlord and how it affects your let, read our expert article.

3. If you have a buy to let mortgage, check you’re on the right deal

Mortgage payments are one of the biggest monthly costs for many landlords and even a small change in the interest rate can make quite a difference over the course of a year.

While mortgage rates tend to go up and down as the Bank of England base rate rises and falls, the current high inflation rate is also impacting how much it costs for mortgage companies to run their businesses.

That means, in addition to the base rate rise of almost one per cent between December 2021 and May 2022, mortgage lenders are having to factor their own increased costs into the rate of interest they charge.

The result of this is that we’re seeing the historic lower-rate mortgage deals from September disappearing and more expensive ones being introduced.

And if costs keep rising, it’s likely that mortgage rates will too.

So, if your current deal is coming to an end within the next couple of years, it’s worth taking advice from a specialist buy to let mortgage broker, who can help you decide whether it might be worth switching sooner rather than later.

They can take all your personal and financial circumstances into account to find you the most appropriate new product – and it’s important to understand that the ‘best’ deal for you might not necessarily be the one with the lowest interest rate.

Alternatively, you may own your properties and need cash to help you get through the next few years, or indeed if you want to invest in property improvements or expand your portfolio, so with rates starting to rise from historic lows, now might be the time to remortgage and release some equity.

If you’d like to discuss your current property financing and get some real help and support now and in the future, the team at Total Landlord Mortgages will be happy to help.

4. If you pay the utility bills, shop around

The cost of heating is likely to be one of the biggest concerns for bill payers right now. So, if you’re a landlord who pays the utility bills for your rental – usually HMO landlords – it’s really important to make sure you’re on the best possible deal.

Although energy costs are rising, you can often save money by switching provider and getting a ‘new customer’ discounted deal, so it’s well worth shopping around.

Then, if your property doesn’t already have smart meters for gas and electricity, it’s well worth having one installed. Readings are sent automatically to the supplier at least once a month, meaning your bills will always be accurate, and you can put the display device in a convenient location so your tenants can easily see their usage in real time.

Even though they’re not paying the bills, if you have a good relationship with your tenants, check if you have a fair usage policy in your contract, discuss with them the cost increases and chat through how between you, you can help to reduce energy usage where possible.

See the Smart Energy GB website for more information and advice on switching – which you can do with no up-front cost.

5. Review what work is required to keep attracting the best market rents

Although it’s important to keep your costs under control, the amount of rent you can charge plays a big part in maintaining a good level of rental profit.

So, even though you might be tempted to save money by cutting back on maintenance and upgrades, there are four very good reasons why you should continue to invest in your property:

  • You have a legal obligation to maintain the property in a good condition
  • You want to encourage good tenants to stay by showing that you care about their home
  • If your tenants leave, you need to be able to re-let quickly at the best possible market rent
  • Regular repairs and periodical renovations will help protect and potentially improve the capital value of your investment. This can help you re-mortgage at lower loan to values (LTVs)

Keep checking online and with letting agents to see the quality of accommodation being provided by other landlords in the area and aim to make your property better.

Remember that much of the cost of repairs and replacements can be deducted from your income on your tax return, and money spent on capital improvements can be offset against capital gains when you sell. (Read more about this and other landlord taxes here.)

How landlords can help tenants

As tough as high inflation might be on you as a landlord, this cost of living crisis is likely to be much harder on your tenants:

  • For many, their wages are unlikely to be keeping up with inflation, so their take-home pay will be worth less and less
  • They don’t get the benefit of equity growth from property price rises, as landlords and homeowners do, especially over the last few years
  • There are few energy-saving changes they can make to their home without their landlord’s permission

Many landlords have already done a fantastic job at supporting their tenants during the pandemic, whether that’s putting in place a payment plan for tenants who are struggling, or suspending payment of rent and bills while tenants have been sick with COVID-19 or furloughed.

So what can you do as a landlord to help your tenants through these hard times and ensure they can continue to stay in their home?

How landlords can help tenants

1. Tackle utility costs

The first thing that will help tenants keep control of their bills is a gas and/or electricity smart meter. We’ve already mentioned smart meters for landlords who pay the utility bills, but if your tenants pay their own bills directly, they can request a meter switch themselves from their supplier and there’s no up-front cost.

The meter comes with a portable in-home display device that communicates wirelessly with the meter and shows energy usage in near-real time. So your tenants can put the display somewhere convenient and easily see which appliances and activities are using the most energy and where they could make savings.

If your tenants are on prepay, they can top up the account via an app, text message or phone. And if they pay monthly, readings are sent automatically to the energy supplier at least once a month, so their bills will always reflect their actual usage, rather than charging them based on an estimate.

So encourage them to switch and point them to the Smart Energy GB website for more information.

The types of savings that people can make are often very bespoke to their lifestyle, but small changes can be substantial. For example, it’s estimated by the Energy Savings Trust that just turning things off that are on standby can save people £55 a year, or having a four  minute shower could save £70 a year, and even not filling the kettle up each time can save £36.

And, as the landlord, make sure that the property itself is as energy efficient for them as possible, for instance:

  • Insulate the walls, roof and floor to conserve heat
  • Install an energy-efficient boiler
  • Provide white goods that have a good eco-rating

For more information and top tips, see our ultimate guide to having an eco friendly property and listen to our podcast with Rik Smith, energy expert and head of tenancy services at Goodlord.

2. Advise tenants on heating their home to keep it in good condition

If your tenants are cutting back on heating to save on bills and are also keeping the windows shut to stay as warm as possible, there’s an increased chance that the property could become damp and mouldy.

When there’s moisture in the air that can’t escape, it will settle on cold surfaces and if this condensation isn’t wiped away, mould can start to form and that can pose a risk to your tenants’ health.

So it’s worth alerting your tenants to this. Remind them to ventilate properly – that’s using extractor fans if you have fitted them and opening the windows periodically – and advise them to keep the heating on low in the cooler months.

If you’ve already done all you can to make the property as energy efficient as possible, this really shouldn’t cost very much. It will help make sure the property stays in good condition, prevent pipes from freezing and bursting in winter, and your tenants should be healthier and happier!

Tenants heating suggestions

3. Make small annual increases in rent

When landlords have good long-term tenants, they’re sometimes reluctant to increase the rent because they don’t want to risk the tenants leaving.

However, this can actually be detrimental to the tenant. While rent increases might not sound like a good thing, the reality is that gradual inflation is normal. Even social housing providers typically increase rents to their tenants by inflation plus a little extra each year.

So if you’ve kept their rent the same for several years, when they do eventually move on and are faced with current market rents, it could be a huge shock.

If their earnings haven’t gone up much over that time, they may even find they can’t afford to move to a similar type of property.

For the ten years prior to the pandemic – the start of 2010 to the end of 2019 – although there were fluctuations, the annual rate of inflation was an average of two per cent.

If you were charging £1,000 rent in 2010, for that amount of money to buy you the same amount of goods and services, you would need to be charging £1,247.45 a month. That’s nearly an extra £3,000 a year which could go towards helping to pay for any energy efficiency costs and could even stretch to a new boiler.

So, aim to put your rents up by at least that percentage annually – and explain to your tenants why you’re doing it, so they appreciate you’re not simply trying to make more money out of them.

4. Handling deposits

During the cost of living crisis, it may be harder for tenants to find the money for rent in advance and a security deposit.

The good news is there are ways you can help them which still protect you – and the tenant. For advice on handling tenant deposits during the cost of living crisis, see our separate article, helping tenants with deposits during the cost of living crisis.

Raising all-inclusive rents

If your tenant’s rent is inclusive of all bills and your energy costs have gone up significantly, it’s not unreasonable to pass at least some of that on to the tenant.

However, it’s still the case that you can’t increase the rent more than once a year (or during a fixed term, unless the tenant agrees), so think carefully about what kind of increase you want to make and read our article on how to legally increase rents for more information.

Explain how much your bills have gone up and perhaps offer a ‘discount’ on their overall rent increase, in return for them making an effort to reduce their energy usage.

5. Maintain a good line of communication

Communication is key to having a good relationship with your tenant. You or your managing agent should be in touch with them periodically to check that everything is running smoothly with the property and to find out if there’s anything they need. Often, tenants won’t report small problems, so it’s a good idea to prompt them every now and then.

Importantly, make sure they know to call you or your agent if they’re not going to be able to pay their rent on time and in full. When times are challenging for everyone – as they have been over the last couple of years – it’s important to recognise that tenants might be struggling financially through no fault of their own.

So, as long as it isn’t going to be a long-term issue, you should be able to agree a payment plan that will allow them to make up what they owe you over a few months. Being understanding and doing what you can to help them through a tough time is likely to be appreciated.

How to communicate even when you disagree with your landlord or tenant

During the cost of living crisis it’s more likely that tenants are going to struggle to pay their rent and fall into arrears. This is a scary and unpleasant situation for both the tenant and the landlord and can have severe consequences for both.

This case study, which happened during the tricky financial times of the pandemic, shows that good communication, especially when there is a short term problem, is often the best and quickest way to a successful conclusion to a difficult problem.

How tenancy mediation can help landlords and tenants find the best solution

We were contacted by a landlord whose tenant had explained they were struggling to pay £800 a month in rent.

Because the tenant had been with them a long time – and contrary to the impression often given in the press that landlords will evict tenants at a moment’s notice – the landlord wanted to help. However, they were nervous about how things would get back on track in the future.

The Property Redress Scheme tenancy mediation service helped them agree that:

  1.    The rent would be reduced from £800 to £650 for one year
  2.    How the tenant would make up the payment shortfall would be reviewed after 12 months

Although the tenant requested an extension, it was agreed that the rent needed to go back up to £800 and a repayment plan was put in place for the tenant to pay off the arrears.

So the tenant was able to stay in their home, the landlord didn’t have to re-let the property and the rent shortfall was eventually made up.

This is a great example of how mediation can work much better for everyone than going down the eviction route and ending up in court, which can be a drawn-out and stressful process.

Why you should use mediation

Evicting tenants and chasing rent arrears through the court takes time and money. What’s more, the courts will expect you to try and resolve matters before using the courts. The Property Redress Scheme tenancy mediation service can resolve the situation amicably:

  • It’s quick – they typically reach an agreement in 10 to 15 working days
  • It works – tenants work with the mediation service once they realise they’re not just on the landlord’s side
  • It saves you time, money and stress – the mediation service finds fast practical solutions without incurring expensive court proceedings

Need help and advice for dealing with a dispute? Do call 0203 907 1857 to find out more or start your mediation.

“Very often it takes a neutral third party to act as the go between, especially if the relationships have broken down. It’s great if a solution can be found quickly, but if neither party sees the others’ point of view, the involvement of a mediator to give them a reality check and present both sides of an argument can help bring them to a resolution. It’s not about winning or losing but getting the best result.”

– Sean Hooker, Head of Redress for the Property Redress Scheme

6. Make sure tenants know what financial help is available

If your tenant is on a low income, loses their job or is struggling financially, there are a number of schemes and incentives they might be eligible for, including:  

  • Universal Credit. If your tenants are out of work or in low-paid employment – including self-employed or part-time – they may be eligible for a Universal Credit payment to help with living costs. Tenants can apply online via the GOV.UK website
  • Pension Credit. If your tenants are pensioners, they may benefit from Pension Credit. Many are eligible, but don’t claim this help, yet it can be worth up to £14.48 a week for a single person, and £16.20 for married couples and civil partners. For more information, visit Money Helper
  • Council tax reduction. If your tenant is on a low income or experiencing hardship, they may qualify for a council tax reduction of up to 100 per cent. Each local authority has different eligibility criteria, but it’s straightforward to apply online. And if your tenant is living alone, make sure they’re already taking advantage of the standard 25 per cent discount . More information on council tax can be found on
  • Household Support Fund. Every local authority UK-wide has access to this fund, to help households struggling to afford food and utility bills on a discretionary basis. In the Chancellor’s Spring Statement this year, he announced that the fund had been doubled and will be available until the end of September 2022
  • Discretionary housing payments. This is financial support for people who receive housing benefit or the housing element of Universal Credit, which can cover rent shortfalls, removal costs for moving home and rent deposits. There are two separate schemes, one for England and Wales and another for Scotland

So, if you do become aware that your tenant is struggling to pay their rent and bills, make sure they know that help is available.

Advise them to speak to the local council housing department or Citizens Advice to make sure they’re getting all the financial support they’re entitled to.

Working with a letting agent

Just as landlords and tenants are feeling the financial pinch, so too are letting agents seeing the cost of running their own business rise.

That means you may need to be prepared to pay slightly higher fees for letting and property management services.

A professional agent can be a valuable asset to you as a landlord, and there are many costs they pay which are associated not only with them complying with the 168 laws to let a property, but also going the extra mile to offer you the best possible service.

These costs include:

  • Membership of a professional industry body, such as Propertymark or Safeagent, which offer accreditation and training, and have a code of conduct that members must comply with
  • Membership of one of the Government-approved redress schemes: The Property Redress Scheme which is part of the Hamilton Fraser Group, or The Property Ombudsman
  • Joining a client money protection scheme, such as Client Money Protect, which compensates you for rent or other monies held by your agent if they go bust or misappropriate the funds
  • Paying for the likes of property portals which can cost over £1,000 per month
  • Keeping up to date with legal changes, especially the new rental reform rules in England and tenancy agreement changes in Wales
  • Ongoing training of staff
  • Higher fuel costs for making property inspections and carrying out viewings

And bear in mind that your agent’s wage bill has also increased since April 2022 – not only are agents having to pay more to secure the best people, but they are also absorbing the 1.25 per cent rise in National Insurance from April.

With ever-increasing rules and regulations governing the lettings industry, and potentially severe penalties for breaking the law, the last thing you want is for your agent to be under financial pressure to cut corners.

It’s also worth meeting with your agent in person to discuss the current situation.

Check that they’re still doing everything according to their management agreement and make sure there haven’t been any issues with rent payments.

If they feel your tenant might be struggling, let your agent know what kind of payment plan or temporary rent reduction you would be prepared to consider.

And if your agent hasn’t discussed a rent increase with you recently, find out why not and what they feel would be a reasonable amount to charge at the next annual review or if you need to re-let in the next couple of months.

Overall, the most important thing to ensure is that you have a good line of communication with your agent and you’re both clear on where and why certain costs might need to rise in order to make sure your property remains legally and professionally let and managed.

For some further comment and advice on surviving the cost of living crisis, read our Landlord voice article by Tom Entwistle, founder of LandlordZONE who has been through this all before as a landlord himself.

And for advice from experts across the HFIS group, read our article on helping tenants with deposits during the cost of living crisis.

Our podcast with Rik Smith, energy expert and head of tenancy services at Goodlord, is also packed with useful tips and tricks to help landlords and agents navigate the challenges of  the cost of living and energy crisis.

Become a Total Landlord.
Get a quote for our award winning landlord insurance.