Buy-to-let remains profitable investment for many property investors

Despite tax and legislative changes, the number of buy-to-let investors selling their properties has slowed down. The sector as a whole has found ways to adapt to the recent changes.

In 2020, the number of homes sold by landlords hit a seven-year low in Great Britain with 131,900 properties, according to research from London estate agency Hamptons. However, there were limited opportunities for landlords to sell up in the last year.

The property market paused temporarily during the first lockdown in the wake of the COVID-19 pandemic. Additionally, the eviction ban and six-month notice periods also came into effect for landlords.

With tax and legislative changes coming into effect, some buy-to-let investors have sold up in recent years. Some were predicting there would be a mass exodus of landlords leaving the buy-to-let sector. However, many landlords and investors are adapting and continuing to find it a profitable form of investment.

Aneisha Beveridge, head of research at Hamptons, comments: “Landlord sales have been relatively high over the last few years due to tax and regulatory changes that have reduced the profitability for some investors.

“But given tax relief on mortgage interest will be fully phased out from the 20/21 tax year, it seems as though most landlords who would be hit hardest by these changes have already left the sector.”

Long-term investment

Buy-to-let landlords who are investing for the long term are seeing the biggest returns. The UK property market has strong long-term prospects for capital appreciation and increases in rental demand. This continues to make it an appealing long-term investment.

“Over the last few years, the average capital gain made by a landlord has been shrinking,” she says. “But despite the pandemic, stronger house price growth seems to have reversed this trend.

“Landlords who have been in the game for the longest period of time have reaped the largest rewards. The average landlord who owned their buy-to-let for more than 15 years made more than three times more than a landlord who had owned their property for less than five years. Many of whom would have renovated and invested further in their property to add value.”

In the coming years, house prices are forecast to rise the most in parts of the north of England. Many buy-to-let investors are keen to get their foot in the door to maximise the potential price hikes. And the stamp duty holiday has made it an especially appealing time to expand property investment portfolios.

A recent survey of the private rented sector revealed about 65% of landlords feel the industry has changed for the worst. This is predominately due to the increase in regulation, legislation and tax. However, 79% of the landlords surveyed still believed they will be a landlord in five years’ time.

This shows that many still consider buy-to-let a profitable and worthwhile endeavour. Additionally, more first-time landlords are currently entering the buy-to-let sector. The stamp duty holiday and low interest rates have made it an attractive time to buy their first property investment.

Rental demand outside of London

In Great Britain, the average rent on a newly let property was 4.4% higher in March than at the same time last year. Regions outside of the capital continue to see the highest rates of rental growth.

Rents rose by 6.8% annually in regions outside of London. This was the third month in a row that annual rental growth outside of the capital surpassed 5%. Additionally, every region of England recorded rental growth of at least 4% except London.

Aneisha Beveridge comments: “Despite the gradual easing of lockdown, the London vs rest of the country rental growth divide remains entrenched. Outside the capital would-be tenants are scrabbling over stock before it hits the portals, while in Central London landlords are chasing tenants just as relentlessly.”

Major cities across the UK are seeing strong rises in demand as city centre rental enquiries are surging. With lockdown restrictions continuing to ease, this is expected to further increase in the coming months as more professionals return to the office and as more socialising is allowed.

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