Average Buy to Let makes a return of just £2k a year pre-tax

Average Buy to Let makes a return of just £2k a year pre-tax

14:01 PM, 12th September 2019, About 4 years ago 4

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The true cost of a being a landlord: Letting platform Howsy has revealed how the profitability of the buy-to-let sector is being squeezed due to the hidden costs of being a landlord, coupled with the financial penalties handed down from the Government via changes to stamp duty tax.

In recent times, the buy-to-let market has been considered a good investment for those with the financial means to operate within it, leading to a number of Government changes to dent this profitability through initiatives such as an increase in stamp duty tax.

Despite this, landlords are still considered to be ‘raking it in’, but Howsy has found that the average landlord is left with just £2,000 from an annual return of £13,000 once the hidden costs of being a landlord are paid for.

However, with the introduction section 24 mortgage interest relief restrictions and depending on the landlord’s tax status it is easily possible for this to be taxed into a loss!

The research shows that the initial start-up costs of Stamp Duty Tax (£6,663) and agency fees to find a tenant (£811) cost the average landlord £7,475 and that’s before the ongoing costs are considered.

According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy, that’s an average of £535 a year.

What’s more, 73% of landlords buy with a mortgage and each and every year will see £6,921 paid out in interest as a result. Couple these costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 and you’re talking £11,147 per year.

In a worst-case scenario, UK landlords may also find themselves forced to stump up for additional unforeseen costs, such as the legal process to evict a tenant. While this doesn’t happen to everyone, there is a one in 500 chance that you will have to pay for bailiffs to evict a tenant from your property.  

What’s left?

Based on an average annual rental income of £8,112 divided by the average B2L property cost of £183,278, the average yield available is 4.4% – that’s an annual sum of £8,119.

Over the last decade, the capital appreciation of bricks and mortar has also averaged an increase of 2.85% a year, £5,223 in monetary terms. That means B2L landlords are seeing a return of £13,343 on their investment.

However, leaving start-up costs and unforeseen events out of the equation, once the average UK landlord has paid the ongoing costs associated with a buy-to-let property each year, they’re left with a profit of just £2,140.

Cost Headings Cost Amount (£)
One-Offs Costs: £7,474.54
Ongoing Costs: £11,147
Average Annual B2L Return: £13,287
Average Annual B2L Return – Ongoing Costs £2,140

Costs Explained…

Cost Headings Cost Amount (£) Notes/Sources
One-Offs Costs:
SDLT £1,165.00 Initial stamp duty owed – Gov.uk
SDLT second home penalty £5,498.34 Additional 3% – Gov.uk
Agency fees (tenant find) £811.20 The minimum tenant find fee according to Which?
Total £7,474.54
Ongoing Costs:
Void periods £527 23.75 days a year on average according to GoodLord
Mortgage Interest £6,920.73 73% of B2L landlords have a mortgage according to Which?
Agency fees (management) £1,622.40 The average annual management fee according to Which?
Maintenance & Repairs £2,077.00 Average cost according to Pennington
Total £11,147
Avg annual rent £8,112 Monthly average rent of £676 multiplied by 12
Avg B2L mortgage amount £132,075 According to UK Finance
Avg house price £183,278 Average B2L price according to Money Supermarket
Avg LTV 72.06%
Avg equity £51,203
Annual Yield % 4.4% Average annual rent divided by average B2L house price
Annual Yield £ £8,064 Average B2L house price multiplied by 4.4%
Capital appreciation per annum % 2.9% Based on average property price change per annum over the last decade
Capital appreciation per annum £ £5,223 Source: ONS
Average Annual Return £13,287
Ongoing Costs £11,147
Final Annual Return £2,140


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Michael Barnes

1:09 AM, 14th September 2019, About 4 years ago

"According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy"

How do you get a void within a tenancy?


8:25 AM, 14th September 2019, About 4 years ago

One thing left out in the figures is service charges which are outside the landlords control.
Also the capital appreciation in some areas is non existent if not negative.

Monty Bodkin

8:42 AM, 14th September 2019, About 4 years ago

“they’re left with a profit of just £2,140.“

....if they are daft enough to be paying over 5% interest and don’t have a clue what they are doing.

Old Mrs Landlord

10:05 AM, 14th September 2019, About 4 years ago

Reply to the comment left by Marie at 14/09/2019 - 08:25
Indeed. I only wish ours had gone up £5000+ a year. On the flats, the service charges are now at least 60% up on ten years ago while rents have barely increased at all, and capital appreciation is nearer 2.9% over that period, not 2.9% p.a.

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