Buy to let - is it worth it?

With tax and mortgage rates expected to rise, the buy to let market can appear rather less appealing than it once was. We asked Andrew and Louise, our Lettings experts to take a look and determine if buy to let is still worth it.

Firstly, let’s consider the challenges:

Landlords face an increasingly tough tax environment. Since 2016, buyers purchasing a second property are subject to an additional 3% of stamp duty surcharge, adding an extra £9,000 to a £300,000 purchase.

A range of tax changes have also resulted in landlords paying tax on rental revenue rather than profit. With plans by the Chancellor to freeze the existing capital gains tax allowances still on the agenda, landlords may not escape an increased tax bill on their portfolios.

Increased regulations
In recent years the number of regulations has increased, with a number of laws and obligations that every landlord must abide by. These include anything from fitting smoke alarms and carbon monoxide detectors to issuing annual gas safety certificates and ensuring that electrical devices are safe to use. Being a landlord of a number of properties, without property management support, is fast becoming a full-time job.

With all the above to contend with it’s a wonder why anyone considers buy to let. However, with 80% of existing landlords still keen to retain their assets, the benefits must stack up - and here’s why . . .

House price gains
The average UK property price 40 years ago was £23,730, according to Nationwide's house price index, it is now £231,644. If rental properties have kept in line, a UK landlord would expect to have seen their property's value grow almost tenfold during that same period.

Over a shorter period, the average house price has gone up from £83,976, 20 years ago, and £162,379 a decade ago, offering similar returns.

With this history of house price inflation, it's easy to see why buy-to-let investment is seen as an attractive and reliable way to make money.

Rising rental demand
This has picked up significantly since the last lockdown ended in spring 2021, with a record number of new prospective tenants registered for homes in May.

In June, there was an average number of five viewings across the country before a property was let. This indicates strong demand and confirms that landlords are generally able to choose the most suitable tenant for their property, protecting their assets and mitigating any risk of non-payment.

Earning income from rent
Any aspiring buy-to-let investor will consider the percentage of return on the purchase price each year. The average gross rental yield in the UK, excluding all expenses such as taxation, is 5.9% according to a national estate agency. To put that into perspective a 5% gross yield on a £200,000 property would amount to £10,000 per year in rental income.

Buy to let is still worth it
With increased demand for rental properties bringing higher yields, rising house prices, and a relatively low buy to let mortgage rates, despite the expected rises to come, we believe, buy to let is still a profitable main or sideline business, especially for the long term.

Andrew, our Senior Lettings Coordinator agent says. ‘ The ‘hassle-factor’ of day to day management can be mitigated by property management specialists like ourselves, covering the basics for finding tenants to a full management option of maintenance and mid-term inspections. Although the tax implications can be more complicated, landlords, especially those with a large portfolio will generally instruct accountancy and legal support to advise on investments so they keep abreast of the current legislation.’

To learn more about how our Lettings and wider Estate Agency and Legal teams can support you to manage and grow your portfolio, see our dedicated lettings pages.

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