The benefits of buy-to-let: what investors need to know and is BTL still worth it?

benefits of buy to let

Buy-to-let property remains a key asset class for UK investors. Demand shows no signs of slowing down, with landlords planning to expand the market. There are around 2.65 million landlords in the UK, while 275,600 buy-to-let mortgages were approved in the year to February 2022. This was the highest number of approvals recorded since 2016.

“First-time landlord” was the most searched term in the buy-to-let sector in April, according to Knowledge Bank. However, new entrants to the market will have to contend with seasoned pros. A survey of landlords from Rightmove showed 34% want to grow their portfolio over the coming 12 months.

To assess if these investment plans are the way forward, we’ll explore the benefits of buy-to-let and if buy-to-let is worth looking at in the current economy.

Source: Property reporter, Bridging & Commercial, Rightmove

What are the benefits of buy-to-let?

Like any investment, property returns can’t be guaranteed. However, where investors do their research and tick all the right boxes, buy-to-let property can present a lot of benefits.

Benefit 1: A source of income – landlords can benefit from rising rents

So long as you can secure reliable tenants, a buy-to-let property can provide a consistent stream of income. An income source which has reached unprecedented levels. Rents have risen by 11% over the past year across the UK. This was the fastest growth seen in 14 years, taking average newly agreed rents to nearly £1,000 a month.

As to be expected, London saw the biggest hikes of 15.7%, with rents nearing £2,000. But no matter where investors turn, they’re likely to find potential.  Manchester, Belfast, Birmingham and Nottingham all also saw spikes in rent.

There’s still room to grow too. Rents could rise by £800 over the next 12 months, according to Ocasa. Overall, buy-to-let investors in England and Wales yielded an average of 5.7 per cent on their property investments in the first quarter of 2022. By comparison, the FTSE 100’s total dividend pay-out for 2022 is expected to generate a yield of 3.9%.

The income of rents alone is one of the benefits of buy-to-let that make it worth the investment.

Source: Property Investor Post, Property Investor Today, FT Adviser, AJ Bell

is buy to let worth it

Benefit 2: Capital growth – property prices show few signs of slowing down

Even if yields were to fall to zero, rising property prices could shield investors. The average asking price for property coming to market hit £367,501 in May, according to Rightmove. A monthly rise of 2.1%, marking the fourth consecutive record increase. Since the start of the pandemic, house prices have grown by £55,000. Average homeowners are now earning more from property than their salaries.

Source: Rightmove, The Times

Rising demand for rental properties

As house prices rise, younger generations are increasingly unlikely to get onto the property ladder, adding to demand. Indeed, the supply of quality rental properties is being squeezed in major cities. In London alone, Rightmove found tenant demand rose by 81% in Q1. Meanwhile, the availability rental properties fell by 47% when compared to 2019.

The UK, in some respects, also appears to be slowly shifting towards renting culture. Over the last decade, the number of rental properties grew to 10.5 million, a rise of 12.2%. Rental properties now account for 35.7% of all UK dwellings.

According to Ocasa, the UK now sits alongside other nations famous for their rent-based housing markets. This includes Germany, Hong Kong, and Switzerland.

While it’s true, many people will have to embrace renting as they’re priced out of buying. But, generational preferences may also have an impact. Younger generations are often happy to embrace the freedom renting brings. Old-school notions of owning a home for decades can seem stifling for adventurous 20-somethings; another benefit of buy-to-let and why it’s worth it.

Source: Rightmove, Property Notify

buy to let benefits

Is buy-to-let worth it in the current climate?

The last few years have been difficult to manage for everybody. Many investors have likely asked themselves: “is buy-to-let worth it”? Given the taxes and fees involved, landlords may be wondering if the benefits of buy-to-let outweigh the costs.

Since 2016, investors have had to contend with a Stamp Duty surcharge of 3%. Additionally, mortgage and loan interest relief on second homes was phased out last year. More costs and admin may be on the horizon too as Michael Gove plans more regulation of the rental market.

Despite this, the costs need to be factored into a wider equation. Investors can offset some of their expenses against the amounts they pay tax on. For residential properties, this includes fees paid to letting agents, council tax, advertising costs and money paid towards repairs.

There’s also the ongoing cost of living crisis to contend with. Supply chain issues, energy bills, food prices – everything seems to be going wrong at the moment. The economy is unstable to say the least. But property, as an asset class, may be able to weather the storm better than most.

Where investors worry over day-to-day bad news, they should take a step back and focus on the long-term. Buy-to-let property has delivered better returns than shares, bonds and Government gilts over the last decade, according to analysis from Sequire Property Investment.

This means buy-to-let investments held up in the face of the painful 2008 crash recovery, Brexit uncertainty and – of course – the pandemic. We should try to remember the benefits of buy-to-let and the fact that no matter how bad things get, people will always need a place to live.

Source: Property Investor Post

For more information, feel free to check out our buy-to-let mortgage calculator or our report on how the buy-to-let sector coped with Covid-19.

bridging loan for auction properties

Contact us

Speak to us on the phone, via chat or email about your case, however complex it might be. We have a friendly, dediciated team and one of our underwriters will be happy to help you with your query. We will try our best to say yes to you, instead of finding a reason to say no.

Discover more Articles