Investing in UK buy-to-let has always been best adopted as a long-term strategy, and renewed confidence among landlords points to more positive growth for the sector.
Unlike many other investment options, rental property offers the investor a double income stream, through both a regular rental return and capital appreciation upon the sale of the property. A rise in value can also mean that equity can be released when remortgaging, allowing the landlord to reinvest in another property.
For this reason, most buy-to-let investors enter the field with a view to the long-term. The best returns tend to be generated when owning and renting out a property over several years, due to the property market cycle creating overall capital growth despite natural peaks and troughs on a short-term basis.
One recent report from Hamptons revealed that landlords selling property in England and Wales in 2021 received an average of £91,270 more than they’d paid for it, having owned the property for less than 10 years. The average rental income over that period was £112,000, which equates to a total gross income of £203,000.
Investment location, property type and target tenant can all have an impact on overall returns, but trends show that the longer a landlord owns and operates a property, the better the return on investment.
Buy-to-let confidence is high
A new Landlord Trends report from Pegasus Insight has revealed that confidence among landlords about the future of their lettings business had increased in the fourth quarter of 2024, with 37% saying they felt ‘good’ or ‘very good’ about the prospects of their property or portfolio. This is up from 33% who felt this way a year earlier in Q4 2023.
This reflects a resurgence in confidence in the property market in general, which saw a return to price growth and a boost in transaction numbers over the course of 2024 as market conditions eased compared with 2023. It also coincides with lower interest rates and more competitive mortgage deals compared with a year prior.
The most optimistic buy-to-let landlords were those who reported making a ‘large profit’; almost three quarters (71%) of these landlords felt ‘good’ or ‘very good’ about their prospects, while 33% of those making a ‘small profit’ were equally optimistic.
Rental yields are climbing
According to the latest Rental Barometer from Fleet Mortgages, the average rental yield in England and Wales increased to 7.4% in the final quarter of 2024, up from 6.8% in Q4 2024. Compared with the previous quarter, yields were up by 0.3%.
This trend was also reflected in Pegasus Insights’ report, which revealed that the average yield registered by buy-to-let landlords is close to a 10-year high at the moment.
In terms of market sentiment, the report also found that optimism around rental yields had also increased, with 38% now saying they felt positive about this aspect of their business, compared with 36% last year.
Renters’ Rights Bill – how could it impact the market?
Most buy-to-let landlords are now aware of the impending changes in the sector that are expected to come into law through the Renters’ Rights Bill, including new eviction and discrimination rules, among other things.
As the Bill moves closer, the hope is that more details will emerge that will bring a greater element of certainty and stability to buy-to-let landlords, adding to the confidence in the market.
As Pegasus Insight director Bethan Cooke pointed out, the Bill could ultimately be more detrimental to tenants than to landlords.
“Improving landlord confidence is testament to the resilience of the buy-to-let sector and the strength of the fundamental economics underpinning this market, fundamentals which the Renters’ Rights Bill will only serve to reinforce,” she said.
“If this new Bill forces more landlords to exit the market, it will further deepen the supply/demand imbalance which pushed average rents to unprecedented levels last year.
“What’s more, as the legislative threat builds, so does the pressure for landlords to pre-emptively increase rents to future-proof their businesses.
She concluded: “The long-term profitability trend for the buy-to-let market is stable, and prospects for the sector remain very good. So, while the Renter’s Rights Bill may make life more difficult for landlords, the unintended consequences are likely to be much harder on tenants themselves.”