Buy to let profits dip despite rising rents

Buy to let profits dip despite rising rents

0:01 AM, 3rd April 2024, About 2 weeks ago 1

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Landlords have seen a 6% drop in the average buy to let property’s total return over the past two years as costs rise, research reveals.

Octane Capital says the profits fall is down to rising mortgage costs, rising agent charges and lower capital growth – despite rental income rising by 19%.

The firm looked at landlord expenses, considering both the initial outlay for a BTL investment and the recurring costs versus the anticipated return in today’s market.

The comparison of current costs with costs from two years ago highlights the evolving profitability of a BTL investment.

‘Benefited from a very healthy level of rental income growth’

The firm’s chief executive, Jonathan Samuels, said: “The average landlord has benefited from a very healthy level of rental income growth in recent years and so while the level of capital appreciation seen on their property may have cooled, both aspects of their investment are still bringing healthy returns despite the instability of the current market landscape.

“Of course, higher running costs, most notably as a result of higher mortgage rates, have dampened the overall net return they’ve seen.”

He added: “But it’s fair to say that this reduction in net profits has been fairly marginal considering the current economic landscape and the storm of property market uncertainty that we’ve weathered in recent months.”

The start-up costs for a BTL investment

Octane says that there has been a 17% drop in the start-up costs for a BTL investment, from £12,037 in 2021-22 to £9,952 today – while tenant finding fees have grown by 19%.

The cost to landlords of a void period has risen by 7%.

However, the costs of running a rented home have risen by 18% over the past two years to £15,592 annually.

This surge is largely due to higher mortgage rates, with yearly mortgage interest rising 25% to an average of £10,210.

Agency management fees have also seen a 19% annual increase.

Landlords have seen total returns grow

Despite these cost increases, landlords have seen total returns grow with the average rental income rising by 19% over the past two years to £15,144 annually.

Consequently, the average yield of a BTL investment has grown from 4.9% to 5.8%.

However, that’s down to an unusually underperforming property market, with the capital appreciation of the average buy to let property falling by 6% annually to £15,728.

Taking all these factors into account, the net return of a property investment stands at £15,280 annually when considering the ongoing cost versus rental income and capital appreciation.

This is 6% lower than the net return seen two years ago when the average landlord saw £16,285 annually in capital appreciation and rental income after costs.


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Comments

Cider Drinker

15:57 PM, 3rd April 2024, About 2 weeks ago

If rents have risen by 19% over 2 years, why has Local Housing Allowance for my properties risen by less than 11% over 4 years?

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