Advantages of buy-to-let property: About income, demand and mortgages

Buy-to-let property remains a key asset class for UK investors. Demand shows few signs of slowing down, even with the current problems facing the economy. The Government’s latest English Private Landlord Survey showed 11% of those surveyed plan to increase their portfolios. Small- to medium-sized enterprise (SME) landlords plan to do the same, according to Handelsbanken. A recent study from the bank found that 49% of professional landlords – those owning at least four properties – intend to expand.

As it stands, there are around 2.82 million landlords in the UK, The average landlord portfolio was valued at £1.65 million in mid-2023, and the average landlord has 8.6 properties in their portfolio.

What’s more, according to our own independent research, many landlords are confident in their portfolios, and may expand over the coming months. To assess if these investment plans are the way forward, we’ll explore the advantages of buy-to-let property in the current market.

Source: Landlord Today, Uswitch, Market Financial Solutions

What are the advantages of buy-to-let property?

Like any investment, property returns can’t be guaranteed. However, where investors do their research and tick all the right boxes, buy-to-let property can present a lot of advantages.

Advantage 1: A source of income – landlords can benefit from rising rents

So long as you can secure reliable tenants, a buy-to-let property can provide a consistent stream of income. An income source which has reached unprecedented levels. Renters are now paying £1,223 per month on average across the UK, rising to £2,121 in London, according to Zoopla.

As to be expected, London generates the highest rents. But no matter where investors turn, they’re likely to find potential. Wales, the North East, the East of England, and many other places all saw massive spikes.

There’s still room to grow too. Rents could be pushed even higher due to fierce supply squeezes. Overall, buy-to-let investors in the UK are yielding around 5.60%. In the North of England, yields are reaching almost 9%.

The income of rents alone is one of the advantages of buy-to-let property.

Source: Zoopla, Zoopla

Advantage 2: Capital growth – property prices show few signs of slowing down

Even if yields were to fall to zero, rising property prices could shield investors. The average asking price for property coming to market hit £372,324 recently, according to Rightmove. A monthly rise of 1.1%. Despite all the dire economic news, average property prices have grown consistently since the pandemic emerged.

Source: Property Industry Eye, Land Registry

Advantage 3: Rising demand for rental properties

As house prices rise, younger generations are increasingly unlikely to get onto the property ladder, adding to rental demand. Indeed, the supply of quality rental properties is being squeezed in major cities. Across the UK, there are now over 15 enquiries for every home to rent, according to Zoopla.

The UK, in some respects, also appears to be slowly shifting towards renting culture. In the 10 years to 2022, the number of rental properties grew to 10.5 million, a rise of 12.2%. Rental properties now account for around 35.7% of all UK dwellings.

According to Ocasa, the UK now sits alongside other nations famous for their rent-based housing markets. This includes Germany, Hong Kong, and Switzerland.

While it’s true, many people will have to embrace renting as they’re priced out of buying. But, generational preferences may also have an impact. Younger generations are often happy to embrace the freedom renting brings. Old-school notions of owning a home for decades can seem stifling for adventurous 20-somethings; another buy-to-let advantage.

Source: Zoopla, Property Notify

Are the advantages good enough in the current climate?

The last few years have been difficult to manage for everybody. Given the taxes and fees involved, investors and landlords may be wondering if the advantages of buy-to-let property outweigh the costs.

Since 2016, investors have had to contend with a Stamp Duty surcharge of 3%. Additionally, mortgage and loan interest relief on second homes was phased out last year. More costs and admin may be on the horizon too as the Government plans tougher regulation for the rental market.

Landlords also are still facing the ramifications of Kwasi Kwarteng’s mini-Budget. Also, stamp duty cuts may boost property prices, helping existing landlords, but making it harder for new entrants.

The corporation tax freeze may help landlords investing through limited companies, while the National Insurance reversal will cut tax costs – as will sped up income tax plans. But, the wider financial markets appear unconvinced. The value of the pound plummeted following the announcements, while the Bank of England was forced to step in and try to stabilize the bond market.

Despite the uncertainty, the costs and downsides still need to be factored into a wider equation. Investors can offset some of their expenses against the amounts they pay tax on. For residential properties, this includes fees paid to letting agents, council tax, advertising costs and money paid towards repairs.

There’s also the ongoing cost of living crisis to contend with. Supply chain issues, energy bills, food prices – everything seems to be going wrong at the moment. The economy is unstable to say the least. But property, as an asset class, may be able to weather the storm better than most.

Where investors worry over day-to-day bad news, they should take a step back and focus on the long-term. Buy-to-let property has delivered better returns than shares, bonds and Government gilts over the last decade, according to analysis from Sequire Property Investment.

This means buy-to-let investments held up in the face of the painful 2008 crash recovery, Brexit uncertainty and – of course – the pandemic. We should try to remember the advantages of buy-to-let property and the fact that no matter how bad things get, people will always need a place to live.

Source: Property Investor Post, Simply Business, Bloomberg, Reuters

For more information, feel free to check out our buy-to-let mortgage calculator.