Writing in the Financial Times, Moira O’Neill questions whether buy-to-let investments are with while now.

The article from the Financial Times can be seen here (subscription may be necessary), and discusses the current state and challenges of the buy-to-let property market in the UK, illustrated through the example of a successful renovation and rental project in Burnley featured on the BBC show “Homes Under the Hammer.”

Summary:

• Property Investment Example: The article opens with an example from “Homes Under the Hammer” where two brothers from London bought a property in Burnley for £78,000, spent less than £10,000 on renovations, and achieved an 8% rental yield by renting it out for £650 per month.
• Current Market Challenges: While Burnley remains a profitable spot for buy-to-let investments, the broader UK market faces significant challenges:
  • High Mortgage Rates: Increasing mortgage interest rates are reducing profitability.
  • Regulations and Taxes: New regulations and tax changes since 2016, including the phasing out of mortgage interest tax relief and the 3% stamp duty surcharge on second homes, have made buy-to-let investments less attractive.
  • Lower Investment Levels: Research from Hamptons shows that landlords purchased only 10% of homes sold in the first half of the year, the lowest share since 2010. Lending to landlords has also significantly decreased.
  • Political and Economic Uncertainty: Ongoing political uncertainty and potential rental reforms, such as the abolition of “no fault” evictions, add to the challenges faced by landlords.
  • Inflation: Rising costs for repairs and replacements due to inflation further impact profitability.

Impact on the Market:

• Decreasing Supply of Rental Properties: Landlords are selling more properties than they are buying, reducing the availability of rental homes. This trend has continued since the introduction of the stamp duty surcharge in 2016.
• Rental Income vs. Affordability: Despite rising rental incomes, the financial burden on tenants is significant, with many spending over a third of their monthly income on rent. This raises concerns about the sustainability of rental income for landlords.
• Future of Buy-to-Let: The article suggests that buy-to-let might no longer be a viable option for many, especially individual landlords who rely on property income for retirement. Alternative investments like savings accounts and stock portfolios might offer better returns with less effort and risk.

Conclusion:

The article concludes that, given the current economic and regulatory environment, potential landlords should reconsider buy-to-let investments. It emphasizes the need for property programs to present a more realistic picture of the market’s challenges.

For more information and the complete article, visit FT.com.