Let’s explore, starting with the here and now…
Something to keep top of mind with investment buy-to-let properties is the dual benefit they have to offer - both as a regular source of income in the present and the potential long-term capital gain from any increase in the property's value.
Should I increase the rent of my buy-to-let?
Buy-to-let property supply remains historically low, keeping an upward pressure on rents. According to Zoopla, there’s a supply/demand mismatch across all regions and nations of the UK. This has meant that rental growth has been running in double digits for 18 months. Average rents have increased by £110 per month over the last year – an annual increase of £1,320*. If you haven’t reviewed your rental income for some time, it may be a good time to get a new valuation. It takes 60-seconds and all we need is a postcode.
What are current buy-to-let cost challenges?
One of the biggest changes in recent years for buy-to-let landlords is that they must now pay tax on their rental income at their standard rate irrespective of mortgage interest costs. Previously tax was only paid on profits.
In April 2024 the Capital Gains Tax allowance is due to be cut further. The Autumn Statement 2022 reduced the threshold for Capital Gains Tax, down to £6,000 in April 2023 and will reduce to £3,000 from 6 April 2024. Capital Gains Tax is paid on any profit made when a landlord sells a property that they’re not living in - and it must be paid within 60 days of sales completion.
Many landlords are looking at the future, particularly at what happens when they remortgage. Because of the spate of base rate changes, they risk paying more in monthly mortgage repayments. Some lenders have also become stricter with lending money and stress testing.
However, buy-to-let still has great potential as part of an investment portfolio, with property historically rising in value over time. In 1980, the average sale value of a house was £19,773. By 2023 this had risen to £287,546, an increase of 1,392%*. Any investor would be pleased with that sort of return. Of course, past performance is not necessarily a guide to the future, but property has been very resilient over the long term.
What about Minimum Energy Efficiency Standards?
There were proposed changes to the Minimum Energy Efficiency Standards or MEES, which the UK Government was considering bringing into play from 2025. The plans for England have been scrapped, which will be a relief to landlords that were faced with paying anything up to £10,000 to reach the required EPC rating. It remains to be seen if Scotland or Wales will change their current position on EPC requirements.
Is buy-to-let still profitable in 2024?
Some landlords are finding the market less profitable than it used to be. You need to keep an eye on whether the rental income you make is going to push you into higher-rate tax brackets. This means you may be paying significantly more in tax but making less in profit. But, for those who do it right, buy-to-let is still very lucrative. Rental yields are on the increase, having now risen for 3 consecutive quarters and averaging 6.9% across England and Wales. In Scotland, average gross yield is slightly higher at 7.1%. If you invest in the right locations, yields could be significant, for instance with the North East averaging 9.%**.
Should I set up a limited company to make more profit?
Setting up a private limited company may be beneficial in certain circumstances, however, there’s a lot to think about, so if you’re considering setting up a limited company for your buy-to-let property business, speak to a qualified professional first.
Should I invest further in buy-to-let?
Buy-to-let has its challenges but if you have clear objectives and the right guidance, perhaps from your local letting agent, then it can work for you as part of an investment strategy.
If you are considering buy-to-let, why not start by taking a minute to see what the current rental income value is of your property. You might be pleasantly surprised.
Check now.
