Time for the hard sell on Buy To Let

You don’t need me to tell you that buy to let has had a torrid time of it lately.

For agents trying to coax buy to let investors into the sector - first as buyers of properties to let out and then as landlords instructing agents to manage those properties - it’s tough right now.

That’s because there’s been growing hostility towards buy to let in some sections of the media after stories about poor property conditions and fast-rising rents; and there’s growing knowledge amongst investors that buy to let profits are not what they were.

We know that almost all of those perceptions are unfair, and that the private sector provides valuable and typically good quality housing to tenants wanting the flexibility of renting. And we know that buying the right property in the right place, with a target tenant in mind, can still be financially rewarding despite a growing tax burden and more regulations.

But nonetheless there’s a PR job to be done by agents to show that buy to let remains a good long-term investment. And that PR job may be essential to shift some of the sales stock of flats and rental-friendly properties now on many agents’ books.

So, what arguments might persuade a hard-nosed investor to put money into buy to let in 2023?

Firstly, capital returns are good but, of course, not guaranteed.

New figures from the Halifax show that on  average, UK house prices grew by 20.4 per cent between January 2020 and December 2022, up by £48,620 from £237,895 to £286,515. We doubt that same level of growth will be seen in the next three years but long-term capital appreciation has been consistently good for bricks and mortar.

Secondly, rental returns have been strong especially in high yield areas.

Lettings agency Hamptons estimates that an average property bought in 2017 would have generated £96,000 in rental income over the past six years. After typical maintenance costs of 30 per cent that leaves a 52 per cent return - at least before the very recent difficult mortgage costs. Some areas such as central London and the north of England have performed better still.

Thirdly, there seems little prospect of rental demand slowing significantly.

At the moment, housebuilding is slowing and remaining below the level necessary to meet demand, while the number of social housing properties has reduced in recent years. The private rental sector - now almost exactly 20 per cent of the housing stock in England, and much higher in places like London - continues to offer a much-needed opportunity for tenants. 

Fourthly, would-be investors still have the option of owning buy to lets through a company to minimise their tax and overheads.

Owning a buy-to-let property through a limited company tends to be more tax-efficient, particularly for higher-rate taxpayers. All mortgage interest payments are tax-deductible for companies, and companies are charged corporation tax on profits, which is currently applied at 19 per cent – although this will increase from April 2023 for companies with profits over £50,000.

Landlords who receive a salary from their company still have to pay income tax on it but they can also supplement it with dividends, to make the most of the dividend tax allowance and of the lower dividend tax rates.

Finally - and this is not as cheesy at it sounds - landlords can genuinely feel they are contributing by providing a home. And it’s not the landlord-tenant battleground some people claim it to be.

Last year some 2,200 tenants were asked by an opinion polling firm to rate their present landlord on a scale of 0 (low) to 10 (high).   Across England and Wales 56 per cent of tenants scored their landlords 8, 9 or 10 - in Wales alone, it was 65 per cent. Just eight per cent gave a score of 0, 1, or 2.

Buy To Let may be more of a challenge than before but it’s still worthwhile as a long-term investment option. For many investors, it’s still appealing - and you can benefit from selling the properties and managing them thereafter. So how about it?