September 13, 2023 3:39 pm

Insert Lead Generation
Nikka Sulton

In recent times, there have been tax rule changes, alterations in stamp duty, and various measures aimed at making things tougher for small landlords, all implemented by successive Conservative administrations. These changes primarily impact the taxation of buy-to-let (BtL) properties. Alongside the swift increase in interest rates, there’s been talk of the decline of BtL in the UK and a potential landlord exodus. So, does buy-to-let no longer make financial sense? In this article, we’ll delve into the figures to ascertain the actual situation.


Section 24

Indeed, the confluence of Section 24 and elevated interest rates has significantly submerged most buy-to-let investments. To illustrate this point, I’ve outlined the repercussions of heightened interest rates and Section 24 on a property currently listed on our platform. This property is a one-bedroom apartment crafted by a prominent national housebuilder, situated in a London commuter town. Here are some key particulars:

  • Property Type: 1 Bedroom Apartment
  • Size: 429 square feet
  • Asking Price: £232,000
  • Expected Annual Rent: £14,400
  • Annual Service Charge: £2.25 per square foot


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

The BTL market has taken quite a hit from government policies, causing some landlords to sell their properties as profits dwindle. Is this the end for buy-to-let? We turned to the experts for answers.

“It’s not dead, but it’s certainly in critical condition. This loanused to make up 20 percent of our market, but now it’s down to just 10 percent,” says Mark Farrell, an estate agent at Bishops Estate Agents in Hampshire. This decline follows a significant BTL surge over the past two decades, with the percentage of households earning rental income peaking at six percent in 2014. Many first-time landlords, including those with pension savings, entered the market during this period. However, times have changed. New regulations have dampened enthusiasm, making the once seemingly easy money less appealing.


So, what has changed?

One of the most significant overhauls involved changes to the landlord tax relief scheme. Previously, landlords could deduct the interest paid on their mortgages from their taxable income. However, in 2015, Chancellor George Osborne altered this system, reducing tax relief to 75 percent in 2017, 50 percent this year, and ultimately to zero percent by 2020. Under the new arrangement, landlords can claim a maximum of 20 percent tax relief, impacting higher-rate taxpayers.

Another measure aimed at reining in the market was a stamp duty increase, tacking on an additional three percent for buy-to-lets and second homes. The goal was to make rental or second property purchases less enticing, thereby assisting those struggling to find primary residences. Additionally, in April 2018, regulatory changes mandated that landlords must ensure their rental properties achieve an Energy Performance Certificate (EPC) rating of A to E. Landlords with energy-inefficient properties must invest in improvements or face a £4,000 penalty.


Is this the end for the average landlord?

“It’s not the end for buy-to-let, but it has certainly calmed down,” remarked Claire Chambers of Chambers estate agents in Birmingham. She has observed landlords selling parts of their property portfolios due to shrinking profits but noted that there are still plenty of investors if properties are priced appropriately.

Neil McGroarty from Linley and Simpson estate agents in York mentioned that first-time buyers often seize the opportunity to purchase lower-cost properties released by landlords. “It’s an evolving marketplace, and without a crystal ball, we don’t know where it’s going, but buy-to-let landlords are no longer buying in bulk; they’re acquiring the occasional property. The tax relief was one of the significant advantages.”

Currently, Manchester stands out as the best place for buy-to-let in England, boasting the highest rental yields and rental price growth according to data from the Land Registry and Zoopla. Colchester in Essex and Luton in Bedfordshire follow closely. Other cities in the top ten include Hull, Norwich, Leicester, and Ipswich.

Mr. McGroarty highlighted that in York, an average landlord might only achieve a three percent yield on a high-end apartment costing £300,000 to £400,000, such as one overlooking York Racecourse. However, it can still be an appealing long-term investment, especially if the buyer plans to eventually reside in it during retirement. “It’s not just about yield,” he emphasized, noting that successful investors need to understand their area and plan for the long term.


Buy-to-Let Isn’t Dead, Investors Need to ChangeThe reality is, Buy-to-Let remains viable, but investors must adapt. A more sophisticated investment approach is required; gone are the days of simply buying a property and hoping for the best. Investors must meticulously analyze potential investments before taking the plunge.

We anticipate several changes in the market over the coming years:

  • Most investors will opt for a company structure.
  • Emphasis will be on new builds to leverage aggregated discounts for better investment viability.
  • Developers will offer property discounts to attract investors.
  • International investors may return to the UK, benefiting from favorable income tax rates and a weaker pound sterling.



MORE Buy To Let blogs HERE: 

Buy-To-Let VS Residential Mortgage

Is Buy-to-Let Still Viable in 2023?

Tips for First-Time Buy-to-Let Investors UK

How to Choose the Right Buy-to-Let Property

Essential Guide to Buy-to-Let Home Insurance in the UK

Getting a Buy-to-Let Loan with Poor Credit

The Benefits of Buy-to-Let Mortgages

Can My Mortgage Be Interest-only?

Starting Your Buy-to-Let Business: A Guide

Who is eligible for a buy-to-let mortgage?

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