Did you think the time of investing in buy-to-let property was over? Think again, says Hiten Ganatra. Here he explains how smart landlords can make profits by playing to the market’s strengths
Reading the money sections in the weeklies, you might think the buy-to-let investment is dead.
And it’s fair to say that we’ve seen a noticeable decline in the number of landlords buying homes in recent years.
According to research by HamptonsIn the first half of this year, landlords bought just 10% of homes sold in Britain – a record low since 2010 and a sharp drop from 16% in 2015.
This decline in landlord activity is not the same across the country. The biggest fall was in London, where the share of homes bought by landlords has more than halved, from 17% in 2015 to just 8% so far this year.
The cut comes despite rents in London reaching record highs, highlighting a paradox in the capital’s rental market.
Buy-to-let returns are strong
However, this apparent exodus of landlords does not mean the end of opportunities in the buy-to-let sector. On the contrary, while fewer landlords are entering the market, those who do or continue to do so are finding that returns remain high and in some cases have even improved.
The average gross yield for new investors buying property to let in England and Wales this year is 7.3%, up from 7% in 2023 and a full percentage point higher than in 2015.
This increase in yields is largely due to robust rental growth combined with relatively stagnant real estate prices, creating a favorable environment for both new and existing investors.
The demand for rental properties is high
Despite the reduced number of purchases, demand for rental properties remains high. In 2021, five million households in England and Wales had private rental properties, up from 3.9 million in 2011 and almost double the number in 2001.
This continued demand ensures that rental income remains a reliable source of income for landlords, even as the overall number of participants in the market declines.
It’s clear when you look at average rents: the average rent outside London has reached a record high of £1,314 in Britain, excluding London. This means that average advertised rental prices outside London are around 7% higher than a year earlier Right-wing movement‘s analysis covering the second quarter of 2024. In London, the average advertised rent is £2,661 per month, which is 4% higher than a year earlier.
Research and planning will pay off
Furthermore, while some landlords have sold more properties than they are buying – private landlords accounted for 16% of all sellers in 2022 – the long-term trend of rising rental demand and stable returns makes a compelling case for those considering entering the market now. .
The potential for strong returns is further evidenced by the record number of landlords setting up buy-to-let businesses in 2023, although only a small proportion of total buy-to-let mortgages are currently held by these business landlords.
It is also worth noting the impact of recent tax changes on landlord behavior. The abolition of mortgage interest tax relief, combined with the potential for further increases in capital gains tax under the current government, has made the buy-to-let market more challenging.
However, for those who can weather these changes, the rewards could be significant, especially as property values continue to stabilize and rental prices rise.
In conclusion, while the number of landlords in the UK market may be declining, there are opportunities for those who do
staying – or those considering entering – remain plentiful.
Hiten Ganatra
High yields, high rental demand and the potential for capital growth all point to a market that, despite the challenges, remains lucrative for savvy investors.
The current environment may be more complex and may exclude some, but for those who do their research and plan accordingly, the buy-to-let sector continues to offer substantial returns.
Hiten Ganatra is director of Visionary finance