Buy to let profitability rises despite higher costs and inflation

Buy to let profitability rises despite higher costs and inflation

15:01 PM, 16th October 2023, About 8 months ago 14

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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.

And 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.”

He added: “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%.


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Comments

C-cider

18:21 PM, 16th October 2023, About 8 months ago

It is only profit that counts. If net yield doesn’t include mortgage costs then it’s NOT net yield.

Landlords can earn more if they sold up and bought government bonds. At a time when there is an increased risk of a property crash, I’d choose bonds over tenants right now. If only property wasn’t so illiquid.

GlanACC

18:51 PM, 16th October 2023, About 8 months ago

Reply to the comment left by C-cider at 16/10/2023 - 18:21
I agree, how many landlords are now having shortfall in the rent payments. Simple answer is noboby knows. There are lies, lies and statistics. Shelter sampled 1900 people and came up with the conclusion people are being evicted every 3 minutes. How does that work ? Assuming 8 hours in a day then 8 x 60 = 480 . Every 3 minutes that means 160 people (families) . divide 1900 by 160 = about 12 days for all of them to be evicted ? So is Shelter saying all 1900 have been evicted, othewise where does the 3 minutes come from ? As Shelter is funded by the taxpayer we are entitled to raise a Freedom of Information request to see their thinking.

Badgers tusk

19:04 PM, 16th October 2023, About 8 months ago

How can you have a net yield that doesn’t include the mortgage. Most landlords own in their own name so mortgage costs are taken out of the income so will be losing money but paying tax on the gross income. Terrible situation caused by this government. God help landlords if labour get in will be even worse.

Crouchender

20:52 PM, 16th October 2023, About 8 months ago

Reply to the comment left by Badgers tusk at 16/10/2023 - 19:04This is just a filler/hot air/ PR story. Net yields is why we do business not gross. What planet is B&R on!

C-cider

21:22 PM, 16th October 2023, About 8 months ago

Let me think. B&R are estate agents and lettings agents.

Possible vested interest in talking nonsense.

Michael Booth

6:47 AM, 17th October 2023, About 8 months ago

Talking to a colleague on Sunday exactly about this , he's is selling up plain and simple . His said it is costing him to house people he said enough is enough , some more people homeless.well done so called Conservative government.

JamesB

8:39 AM, 17th October 2023, About 8 months ago

Headline: Buy to let profitability rises.....

Conclusion: We have ignored mortgages, so in reality buy to let profitability has fallen considerably.

Do people get paid to churn out this nonsense?

Graham Turrell, Landlord & Entrepreneur

10:48 AM, 17th October 2023, About 8 months ago

I've a great deal of time for Marc, but I'm afraid this is article as presented is nonsense. Yield (net or otherwise) is certainly NOT the same as profitability. By a lonnnnnng way. Unless of course he's referring to lettings agents !

Mick Roberts

14:29 PM, 19th October 2023, About 8 months ago

Reply to the comment left by GlanACC at 16/10/2023 - 18:51
Good stats Glenn.

Laura Delow

10:07 AM, 21st October 2023, About 8 months ago

What a load of poppycock from B&R's. Their reference to mortgage interest is just an aside.
Taking a portfolio landlord as an example assuming 2023/24 allowances & tax rates/bands, for a £4m Property portfolio value with £1.5m of outstanding mortgages & £180,000 gross rental Income and £82,500 @ 5.5% mortgage interest plus £54,000 allowable expenses (assumes no major repair/replacement works) = £43,500 net rental earnings yet £126,000 is the Declared Taxable Income
Consequences: -
£12,570 personal allowance lost
£74,730 @ 40% higher rate tax
£860 @ 45% additional rate
£23,889 Income Tax after crediting back 20% relief for finance costs / equivalent to 54.9% tax paid =
£19,611 post tax net rental income
Same case study but if mortgage rates are at 6.5%
£28,500 Net rental earnings vs £126,000 taxable income
£20,889 Income Tax after crediting back 20% relief for finance costs / equivalent to 73.3% tax paid =
£7,611 post tax net rental income.

Even if rent increased from £180K to £200K & allowable expenses reduced from £50K to £45K, the landlord is massively out of pocket & would need to substantially increase the rents to well in excess of £200K to make up for just "some" of the extortionate amount of tax paid because of loss of mortgage interest relief.

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