Buy-to-let Investments

You can see why Buy-to-Let (BTL) has been a popular investment choice for many people here in the UK. Choose to have £50,000 in a building society account and you will be lucky to earn 2% or £1,000 per year. That’s without factoring in the effect on your capital of the current inflation rate of 9.4% (June 2022).

This same £50,000 as a deposit on a £200,000 Buy-to-Let property with mortgage costs covered by rental income means if house prices continue to rise you get capital growth on £200,000. Say the property increases by 3% in value, that’s an annual £6,000 ‘return’. Six times the return on cash. In March 2022 there were 9,600 Buy-to-Let mortgage approvals according to figures from UK Finance, continuing the trend.

But there are also a number of buy to let landlords exiting the sector and 16% of homes sold this year were previously let according to research by Hamptons estate agents. Properties are also being removed from the sector to become more profitable and tax efficient furnished holiday lets, especially in coastal areas.

And demand for rental accommodation in many areas is outstripping supply and rental yields are likely to remain strong in many areas.

So, does Buy-to-Let still have a role as part of your investment strategy?

Going back to the financial illustration above, this of course ignores the purchase and exit fees and that’s what you need to consider despite a leveraged return having real attractions for many investors. And the downside to this is that in many areas landlords priced first time buyers out of the market, so in response, the government sought to slow the market down with a raft of measures which has made BTL less attractive as an investment for new entrants to the market and less profitable for those already in it.

In April 2016 an additional 3% stamp duty on second homes was introduced. In 2017 tax relief on BTL mortgages was phased out. This, along with the phasing out of higher rate income tax relief on BTL income and higher Capital Gains Tax (CGT), many investors are rightly questioning whether BTLs are still their best investment option.

Other issues include high management fees, dealing with awkward tenants, void periods, and the bother of deposit protection, which all make owning buy to let property VERY hard work indeed. There is also fresh uncertainty following the publishing of the Government’s Renters’ Reform Bill White Paper which could see the removal of no-fault evictions and fixed term tenancies. It was the introduction of the 1996 Housing Act which allowed Section 21 (no-fault) evictions to apply to shorthold tenancies which helped start the BTL boom along with changes to bank lending based on rental income not just a landlord’s personal income and a glut of cheap properties following the housing downturn of the early 1990’s.

For all these reasons how you structure your BTL portfolio is now more important than ever and focusing on much longer term returns needs to be considered. If you would like to review your BTL strategy and its role in helping achieve your income and investment goals, get in touch today.