Buy to Let Returns on Investment

Posted 7 March 2016 by Neil Moore

I recently read a quote from the author Lois Horowitz; ”Not having the information you need when you need it leaves you wanting. Not knowing where to look for that information leaves you powerless. In a society where information is king, none of us can afford that”.

In this blog I’d like to share with you the information I have been working on as part of the landlord portfolio reviews I have been carrying out for people. This may help you when reviewing your own property portfolio to establish if it is performing as it should or if it requires an overhaul in terms of rental income in light of the current market conditions.

Using a case study of 5 Sussex properties that have each been rented out for an average of 8 years, these properties have achieved an increase of between 13% and 20% in their rental income over the period. For example, a modern two bedroom terraced home in West Sussex let for £725 pcm in 2010 and was re-let in 2014 for £867 pcm, an increase of 20%. This far outperforms the average rental increases across the country and indeed, shows the danger of taking property reports at face value when they assess the UK nationwide market rather than the localised view.

With strong returns, these rental properties are long term investments for their landlords who are also interested in the capital growth from an investment perspective. Looking at seven local properties that have been resold over the last 5 years or so shows an average capital growth of 22%, with a two bedroom flat showing a return of 44% over 2 years in one instance!

In a survey of almost 15,000 tenants, the Tenancy referencing service, HomeLet, established that 64% expect to continue renting for the foreseeable future. The survey showed that whilst tenants aspired to own their own property, 66% felt they could not afford a deposit and just over half of those surveyed weren’t actively saving for a deposit.

With information from large scale surveys such as this showing that many tenants will continue to rent and with new tenants coming to the market, demand will only increase for rental properties and with the returns demonstrated by the previous examples, now is the time to make that investment – either through purchasing your first rental property or by expanding your current portfolio.

And with buy to let mortgage lending on the increase, the investor market seems unconcerned by impending tax changes for landlords. Demonstrating that this is a very strong market at the moment, buy-to-let lending is now the highest since 2007, representing 18% of all new mortgage lending in September. The Council of Mortgage Lenders says that buy-to-let remortgaging rose 62% on an annual basis in September, while buy-to-let lending for house purchase was up 36% on last year.

So if you are already a landlord, now is the time to have your portfolio reviewed to ensure you are getting the best return on your investment and to consider expanding that portfolio. If you are a first time property investor and see a property for sale and would like an opinion on the rental return and investment potential, email me at neilmoore@guyleonard.co.uk or call me on 01403 248222.

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