London houses

London landlords hit hardest by profit dips and tax changes

The buy-to-let sector is very divided at the moment between those choosing to stick with and even grow their portfolios, and others thinking of selling up.

Landlords across the country who were surveyed by Octopus Choice have revealed the divided state of the industry at the moment, with just over half (56%) saying they planned to keep their current investments or buy more, while 44% said they were more likely to be looking to sell up.

The dilemma being faced by many buy-to-let investors and landlords comes as a result of a spate of recent changes within the sector, with Section 24 tax rules affecting as many as 23% of those questioned who said they might leave buy-to-let, while 19% said cooling house prices were the main reason. Just under a quarter (24%) who were thinking of selling said they were making lower yields – explained by both the house prices weakening and the tax changes affecting profit margins.

Higher costs and lower returns in the capital

Perhaps unsurprisingly, this was the case to a greater degree in London than anywhere else in the country, as sky-high property prices there have begun to level out or fall in some areas, making it harder than ever to make a good yield and therefore encouraging London landlords to think about selling.

According to the figures from Octopus, over the past eight years overall returns in London for the average landlord were in negative figures, at -2.46%. The study looked at the income and costs associated with purchasing, running and selling an investment property. According to 2017 house price growth and rental yield figures from LiveYield, an average London property worth £475,000 would need to be sold for £590,000 in order to break even.

Choosing the right region

Sam Handfield-Jones, head of Octopus Choice, said: “Brits still have an incessant love affair with bricks and mortar – but the hassle and cost of buy-to-let is a source of growing frustration, and some landlords may find that their once reliable day-to-day income is becoming harder and harder to come by.

“But this isn’t the case across all parts of the market, with money still to be made from the right property in the right region.”

In England, the strongest performing areas were the East Midlands with 8.18% returns over eight years, the West Midlands with 6.47%, the north-west with 3.96% and the south-west with 3.91%.

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