The Cost of Being a Landlord in 2021

An annual ranking by CIA Landlord has revealed the true cost of being a landlord and where in the UK is the most profitable area to invest in.

• Brighton ranked as the most profitable city for landlords for the second year in a row followed by Bangor, Portsmouth and Leeds

• On average, UK landlords need to spend £1,134 per month in 2021, which includes average monthly mortgage costs, and monthly fees for maintenance, alongside average letting agency fees.

• St Albans was revealed as the worst city to become a landlord with an average monthly loss of -£735.36

• Only 6 out of 33 London boroughs are profitable for landlords in 2021, down 48% from last year’s profitability for London

• Kensington and Chelsea is the least profitable London borough for landlords in 2021

COVID-19, stamp duty holidays and fluctuating house prices have radically shifted the prospect of owning a buy-to-let property in 2021. However, it’s clear that location is more important than ever if you’re planning on making an investment this year.

Being a landlord can provide a lucrative income if planned correctly, but it’s not just about renting out a property. Many people may jump into it without fully understanding what’s required – especially when it comes to finances and additional expenses including maintenance costs and landlord insurance.

CIA Landlord has put together an updated annual ranking for 2021 looking at every cost associated with being a landlord in the UK and where they lie.

From licence fees to maintenance costs, the research gives an overview of the best and worst cities and places to become a landlord in 2021.

Brighton Retains Its Title as the Most Profitable City to Become a Landlord

One of the main reasons people choose to become a landlord is through it’s opportunity for passive income. If this is on your mind, it’s important you choose a location where you can maximise your profits.

As part of the research, CIA Landlord looked at the best cities to become a landlord based on the average property price, mortgage amount, average rent from tenant, and the monthly costs of being a landlord to calculate monthly profit.

Brighton has been revealed as the most profitable city to become a landlord for the second year in a row, with landlords making £571.85 profit on average per month. Bangor, Portsmouth and Leeds follow with £500.53, £479.27, £477.60 average profit per month.

Table 1. Top 10 places to become a landlord based on average property price, mortgage amount, average rent and monthly costs vs profits.

*The landlord monthly costs have been calculated by taking the average monthly sum of tenancy deposits, landlord insurance, energy performance certificates, gas safety certificates, national insurance, licence fee, average appliance costs and average furniture costs.

**The monthly profit total has been calculated by taking the sum of the average rent, minus the monthly mortgage and monthly fees.

St Albans Identified as the Worst Place to Become a Landlord in 2021

Although on the surface it seems that being a landlord is a constant flow of income, there are some cities where you’ll find yourself losing money. Due to the average property price, cost of a mortgage, monthly fees and rent charge changing throughout COVID-19, if you’re not careful there are a number of locations you will find yourself at a loss in profit per month in 2021.

The table below shows the worst cities to become a landlord in 2021:

Table 2. The cities where you’d make a loss becoming a landlord in 2021.

Only 6 Out of 33 London Boroughs Are Profitable for Landlords in 2021

Our study also uncovers the true impact the Covid-19 pandemic has had on the UK housing market, identifying that the majority of London boroughs are unprofitable. The research revealed that London’s profitability for landlords has decreased by 48% overall since January 2020.

Rising property prices and decreasing rental rates are squeezing profit margins for landlords, leaving 27 out of 33 London boroughs unprofitable in 2021, a massive dip from our ranking last year.

The table below shows the most profitable London boroughs to become a landlord in 2021. 

Barking has been ranked as the most profitable borough with an average of £261 profit per month.

Table 3. Top 10 places to become a landlord in London based on average property price, mortgage amount, average rent and monthly costs vs profits.

*The monthly profit total has been calculated by taking the sum of the average rent, minus the monthly mortgage and monthly fees (£61.56 in England).

Barking was identified as the most profitable London borough with an average profit of £261.10, followed by Brent with £241.28 and Newham making an average of £183.48.

Barking, Brent, Newham, Westminster, Tower Hamlet and Southwark were identified as the only profitable London boroughs out of 33.

Compared to last year’s ranking, the stark difference in profit difference due to COVID-19 is apparent.

Areas closer to central London are becoming increasingly unprofitable as more and more Londoners move away from city rentals.

Take a look at the table below revealing the boroughs with the most profit loss for landlords in 2021:

Table 3. London borough landlord profitability comparison from 2020 to 2021

Kensington and Chelsea Is the Least Profitable London Borough for Landlords in 2021

Kensington and Chelsea, Richmond Upon Thames, and Earling were identified as the least profitable cities to become a landlord with average losses of £2,271.19, £1,232.75, and £921.93.

It is important when considering becoming a landlord to identify places, where long-term profit is achievable as mortgage costs, monthly fees and rent charges, may find you at a loss in profit per month.

The table below shows the worst London boroughs to become a landlord in 2021:

Table 4. Worst 10 places to become a landlord in London based on average property price, mortgage amount, average rent and monthly costs vs profits.

The Annual Required Fees To Become A Landlord in 2021

As part of the cost of being a landlord, there are fixed fees that you must adhere to. It’s important to make note of these and keep an eye on when they need to be renewed.

Table 5. The costs required to be a landlord.

*Annual landlord licence fee cost is taken from an average of England, Wales, Scotland and Ireland.

The Cost of Maintenance, Repairs and Replacements for Landlords in 2021

One area that can cause setbacks to landlords income is the cost of maintenance repairs and replacements. Whether it’s supplying a toaster for a new tenant or replacing an entire dishwasher, these costs soon add up.

The study revealed that the average cost of buying all household appliances, (dishwasher, fan oven, tumble dryer, fridge, washing machine and boiler) comes to a hefty £481.23, with an average annual replacement cost of £39.83.

The table below shows the costs of appliances to take into account:

Table 6. The cost to buy or replace appliances for buy-to-let properties, based on the average frequency of replacement and annual/monthly costs in 2021.

When it comes to furnishing your buy-to-let house, if you wish to provide basic household furniture, it’s important to take into account these costs as well. For example, the total cost of purchasing furniture, (bedframe, mattresses, sofa, wardrobe, drawers) comes to an average cost of £1,314.65 in a 1-bed house, with an average annual replacement cost of £115.32.

The table below shows the costs of furnishing:

Table 7. The cost to buy or replace furniture for buy-to-let properties, based on the average frequency of replacement and annual/monthly costs in 2021.

Richard Wayman, Finance Director at CIA Landlord Insurance comments,

“COVID-19 has undoubtedly shifted the way new landlords will be looking to invest in 2021, and our ranking makes it clear that considering location alongside price has never been more crucial. 

When looking into the true costs of being a landlord this year, it can certainly come as a surprise to some at just how expensive certain requirements are as well as the fluctuation in these costs.

Before taking your first step into the property ladder, we recommend you consider all of the costs involved in becoming a landlord and ensure you invest in an area that is stable and will be profitable for you in the long term.”

Methodology

In order to calculate the best city to become a landlord, we analysed every cost from maintenance and furnishing to letting agent fees, safety certificates, national insurance, licensing fees, tenancy deposit registration, and landlord insurance costs. This was combined with the average mortgage amount, rental rates, and property prices across 69 UK cities and 33 London boroughs to determine what was the best areas to become a landlord in 2021.

For the full sources, get in touch at sarah.fleming@kaizen.co.uk