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Is the Buy-To-Let market dead?

It has been hard-hit by government and some landlords are selling up as profits shrink, so is this the end of buy-to-let? We ask the experts.

“I would not say it is dead, but it is in intensive care.  Buy-to-let was 20 per cent of our market and now it is only 10 per cent,” said estate agent Mark Farrell of Bishops estate agents in Hampshire.  The decline comes after a buy-to-let boom for much of the past two decades with the proportion of households reporting income from rental properties rising to six per cent in 2014.  A growing army of first-time landlords, some with pension pots to invest, acquired properties to rent out.  But fast forward four years, the rules have changed and fewer are jumping on the bandwagon. What appeared to be easy money to be made isn’t so tempting now.

So, what has changed?

One of the biggest shake-ups was to the landlord tax relief scheme. Previously, landlords were able to deduct the interest they paid on their mortgages from their taxable income. In 2015, the then Chancellor George Osborne changed the system, so they could only claim tax relief on 75 per cent in 2017, 50 per cent this year and 0 per cent by 2020.  Under the new system, landlords can claim a maximum of 20 per cent tax relief, stinging higher rate tax payers. Another initiative to rein the market in, is a stamp duty hike that added three per cent to buy-to-lets and second homes. The idea was making it less atrractive to buy rental or second properties would help those struggling to find one to live in.  In April 2018, regulatory changes meant landlords must ensure properties they rent out have an Energy Performance Certificate (EPC) rating of A-E. Landlords with sub-standard, energy-guzzling properties have to fork out for improvements or risk a £4,000 fine.

Is the Buy-to-Let market dead?
Is the Buy-to-Let market dead?

Is this the end for the average landlord?

“It isn’t the end for buy-to-let but it has certainly quietened down,” said Claire Chambers of Chambers estate agents in Birmingham. She has had landlords sell-up part of their property portfolios as profits shrink but said there are still plenty of investors if properties are put on the market at the right price.

Neil McGroarty, of Linley and Simpson estate agents in York, said first time-buyers often snap-up the lower-cost properties sold off by landlords. “It is an evolving marketplace and without a crystal ball we don’t know where it’s going to go but buy-to-let landlords are not buying in bulk now, just the odd property. The tax relief was one of the huge benefits.”

Manchester is currently the best place for buy-to-let in England. It ranked highest for rental yields and rental price growth, according to data from the Land Registry and Zoopla. Colchester in Essex and Luton in Bedfordshire came second and third. Cities in the top ten best-to-let areas include: Hull, Norwich, Leicester and Ipswich.

Mr McGroarty said in York, the average landlord might only get a three per cent yield on a high-end apartment costing £300-400,000 overlooking York Racecourse, for example.  But it could still be an attractive long-term investment if the buyer planned to eventually live in it when they retire. “It is not just about yield,” he said. For success, investors need to know their area and plan in the longer term.

Houses in multiple occupation

Research from specialist buy-to-let mortgage brokers Mortgages For Business has shown landlords who let out houses room by room can still get bumper profits. They raked in yields of 8.9 per cent on average. This compares to lower 5.6 per cent yield on properties where the whole property is let to a tenant.

Ms Chambers explained: “In Birmingham city centre, if you have a five-bedroom end-of-terrace property, you could typically rent it out to one family for £850 per month, whereas if you rent out five bedrooms individually you could get £300 per month per room – a total £1,500.”

“There are a lot of regulations that come with houses in multiple occupation (HMOs) but they are still very popular in the city centre, especially where there is a lot of student accommodation. It can also be useful for tenants who would otherwise struggle to get a roof over their head if they had to rent a whole property.”