15:12 PM, 28th November 2011, About 12 years ago 2
Buy to let investments do not make landlords money even though tenants are paying record rents, according to a new study.
Financial experts reckon rents are languishing below pre-credit crisis levels when tax and inflation are taken in to account.
Poor rent returns and falling house prices are strangling the expansion of private rental homes, says the report by Reading University for the Residential Landlords Association (RLA).
Based on data from 200 landlords, the university found rents do not cover expenses when the true cost of investment is considered, including:
Landlord taxes averaging £1,000 a year are also more than on other types of property, said the report author Professor Michael Ball. Tumbling property prices over the past four years have resulted in negative yields for many landlords who would have had a better return investing their money elsewhere, he added.
Ball warns the likely outcome for tenants is higher rents resulting from too few rental properties. Professor Ball said: “There is much hype about the private rented sector at present, but the reality is that landlord returns are generally poor and with a weak economy are likely to stay that way.
“Investment in the past was driven by rising house prices, now there is a need to rethink taxation and regulation so that rental returns come to the fore at rent levels that are affordable for tenants.”
He is also calling for government reforms to cut tax and red tape to reduce pressure on rents.
RLA chairman Alan Ward said: “Professor Ball’s report demonstrates clearly that the private rented sector is taken for granted – the returns are only superficially rewarding because few landlords account for the cost of regulation and taxation.
“Only the lack of an alternative secure investment, and the curse of capital gains tax, prevents many landlords from dis-investing just when more people need private renting because of lack of access to the owner occupied and social rented sectors.”
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