14 Skyline | Edition 6 | Autumn 2023
Market confidence tends to go in cycles and , at the moment , confidence in the buy-to-let market is at a low ebb . Some sections of the media claim that buy-to-let has lost its shine or even that it is on its last legs .
David Whittaker
CEO Keystone Property Finance
They argue that never-ending regulatory creep , punitive taxes and higher interest rates mean that landlords are just waiting for the right moment to offload their portfolios en masse . It would be foolish to argue that the sector doesn ’ t have its challenges – but then so do many other areas of the economy .
But while the market has slowed , there are some very good reasons why we should be quietly optimistic about buy-to-let ’ s medium-to-long-term prospects .
Professional landlord profits remain healthy
The first is that despite challenging conditions , landlords are still turning a profit . Research by Savills in June revealed that landlords ’ average net profits had fallen to their lowest level since 2007 . The estate agent says the average investor made cash profits of under 4 % of rental income in the first quarter of 2023 , down from 23 % between 2014 and 2021 , due to rising interest rates and higher taxes . That is a major fall , but there is still money to be made .
How much profit a landlord makes will depend almost exclusively on their debt exposure . According to Savills , landlords with an LTV of 60 % were able to generate an average profit of 10.2 % while those with an LTV of 50 % generated 16.5 %. Landlords leveraged at 80 % made a 2.4 % loss in Q1 .
When you consider that three in four mortgaged buy-to-let properties have an LTV of less than 60 %, according to Savills ,
Let ’ s not forget that landlords who are now purchasing properties through a limited company structure are likely to be making even more profit , as they can offset the full mortgage interest through the company accounts and one in three have an LTV of less than 50 %, the majority of landlords are still making a profit – and , for lots of them , a good profit .
Let ’ s not forget that landlords who are now purchasing properties through a limited company structure are likely to be making even more profit , as they can offset the full mortgage interest through the company accounts . This and other tax advantages are some of the main reasons why landlords have shifted from buying in their own name to buying through a limited company structure over the past few years .
In fact , more than 302,000 landlords incorporated last year – the highest number in any calendar year on record , according to Hamptons International . It means the total number of buy-to-let companies has doubled since 2017 .
Rental demand is soaring
Another reason to be optimistic about the future of buy-to-let is the increased demand for rented accommodation where many tenants are vying to rent properties across the UK .