The profitability of buy to let properties in the UK has increased over the last year, according to new research.
Letting and estate agents Benham and Reeves has analysed the gross and net rental yields of the average BTL property across the country, taking into account the costs of maintaining and furnishing a rental home. it says that the average buy to let property costs £289,824 and rents for £1,276 per month.
This means that landlords can expect to earn £15,312 per year in rental income, or a gross rental yield of 5.3%.
That’s a 4.8% improvement in the last 12 months.
‘Gross yields have remained fairly favourable’
Marc von Grundherr, a director of Benham and Reeves, said “while gross yields have remained fairly favourable, the reality of buy to let investing is that there are a whole host of additional costs that need to be considered and accounted for, all of which eat further into the profit margins of landlords. This is a small detail that the Government has largely neglected to consider when waging war against the sector and introducing numerous legislative changes designed to dent profitability. What’s more, the cost of goods remains considerably higher than they were just a year ago and so even furnishing a property to an acceptable standard can be an expensive endeavour.
The silver lining is that while the average net yield may sit at just 3.4% currently, this has increased in strength over the last year and so the consistency of buy to let investing remains, albeit not to the same extent as we’ve previously seen.”
Net rental yield is lower once the annual running costs are deducted
However, the net rental yield is lower once the annual running costs are deducted and these costs include letting agent fees (£1,837), general maintenance (£2,898), gas safety certificate (£80), electrical safety report (£225) and landlord insurance (£427).
In total, these expenses amount to £5,468 per year for the average landlord, reducing their net income to £9,844 and their net yield to 3.4%. This is still higher than 3% a year ago.
The net yield does not include the cost of repaying a BTL mortgage, which is currently £1,201 on average.
Moreover, landlords also have to deal with inflation affecting the prices of furniture and appliances.
In the last year alone, the cost of electric cookers has risen by 12.3%, curtains by 8.8%, dishwashers by 6.7%, armchairs by 5.7%, washing machines by 5.2% and wardrobes by 4.8%.
What is the value of the UK buy-to-let market?
Where in the UK can the most rented homes be found?
The total value of the buy-to-let mortgage market stood at £41.3 billion in 2022, an 88% increase from 2013, new research suggests. Government data, analysed by experts at Confused.com mortgages, shows that from the four UK nations, 15.29% of homes in England are privately rented, 14.9% in Scotland, and 14% in Wales and Northern Ireland.
Meanwhile, London has the most rented homes at 20.81% and the North East has the least at 13.27%.
The smallest rent-to-house price ration is in Blackpool at 1:237, while the biggest is in Cotswolds at 1:538. Most rental properties are terraced houses, accounting for 46.1%, followed by purpose-build flats or maisonettes, accounting for 38.7%, according to the Department of Levelling Up, Housing and Communities.
Confused.com experts also noted that most landlords over the next two years are planning to keep their number of properties the same.
The research also shows that many landlords who plan to decrease their portfolio or leave the sector will do so due to recent (54.9%) and upcoming (52.8%) legislative changes. Meanwhile, compliance with legal requirements is high, with each floor in 98.8% of properties having smoke alarms. Data also shows there are electrical installation checks by a qualified tester in 91.4% of cases.
Buy To Let has grown massively in recent years - new statistics
Government data shows that as of 2022 some 15.29% of homes in England are privately rented, with 14.9% in Scotland and 14% in both Wales and Northern Ireland. London is the location with the most rented homes, with 20.81%. The North East of England has the least, with 13.27%.
An analysis of this data and separate figures by the Financial Conduct Authority by Confused.com shows that by the end of last year the total value of the buy-to-let mortgage market stood at £41.3 billion. The market has grown by 88% compared to 2013.
Blackpool has the smallest rent-to-house price ratio, at 1:237, while the Cotswolds has the biggest, at 1:538. The rent-to-house price ratio is calculated by dividing the average house price (from the UK House Price Index) by the average monthly rent (from the Office for National Statistics). According to the Department for Levelling Up, Housing and Communities, most rental properties are terraced houses (46.1%) or purpose-built flats or maisonettes (38.7%). England’s landlord population is primarily dominated by private individuals, representing 93.7% of the country’s landlords. Companies comprise just 4.7%, and a mixture of private and companies forms 1.0%.
Regarding portfolio size, 43% have only one property, while 39.3% have between two and four properties. Landlords with a portfolio size of five properties or more make up less than a fifth of the total. Separate surveys suggest that over the next two years, most landlords plan to keep their number of properties the same. Many who want to decrease their portfolio or leave the sector attribute their decision to recent and forthcoming legislative changes.
- Most of England’s landlords are aged 55 and above (62.8%). Just 0.1% are 18 to 24 and only 2.2% are 25 to 34.
- A total of 52.9% have been landlords for 11 or more years; 38.5% for four to 10 years.
- Some 75.1% of landlords’ first rental property purchases were funded with a mortgage.
- The largest group of landlords are those who are retired (34.9%) followed by full-time employed (29.7%) and self-employed in roles other than as a landlord (14.6%). Self-employment as a landlord represents 13.5% of the group.
- Most landlords (57%) have a buy-to-let mortgage. However, 38.3% have no debt or borrowing.
For both new and existing tenancies, more landlords increased the rent (45.5 and 26.4% respectively) than those who kept the rent the same or decreased it.
As of 2022, the total gross advances (new mortgage loans given to borrowers) amounted to £322.5 billion. Of this total, buy-to-let mortgages made up 12.8%. However, most of the mortgage market is still dominated by mortgages for owner-occupied properties – this makes up over three quarters (87.2%). The actual value of the buy-to-let mortgages equates to approximately £41.3 billion, showing a significant level of investment in buy-to-let.
Compliance with legal requirements is high, with smoke alarms on each floor in 98.8% of properties and electrical installation checks by a qualified tester in 91.4% of cases.
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