UK Buy-to-Let Properties See Increased Profitability Despite Rising Costs

Recent research reveals that the buy-to-let market in the UK has witnessed a surge in profitability over the past year. This analysis, conducted by esteemed letting and estate agents Benham and Reeves, scrutinized both gross and net rental yields of the average buy-to-let property across the nation, taking into consideration maintenance and furnishing costs.

Average buy-to-let properties now command a price of £289,824, with a monthly rental income of £1,276. This equates to an annual rental yield of £15,312, marking a substantial 4.8% upswing over the past 12 months.

Challenges in the Margins

Marc von Grundherr, a director at Benham and Reeves, emphasizes that while gross yields remain attractive, there are underlying costs that significantly dent landlords' profit margins. He underscores that these details have been somewhat overlooked in recent government policies, which have introduced various legislative changes targeting profitability.

Moreover, Grundherr points out that the cost of goods has markedly risen in the past year, making the process of furnishing a property a potentially costly endeavor. On a positive note, he mentions that while the average net yield currently stands at 3.4%, this figure has strengthened over the past year, indicating a continued viability in buy-to-let investments, albeit not at the same level as previously observed.

Net Yields Under Scrutiny

However, it's crucial to consider that the net rental yield is lower once annual running costs are factored in. These costs include letting agent fees (£1,837), general maintenance (£2,898), gas safety certificates (£80), electrical safety reports (£225), and landlord insurance (£427). Collectively, these expenses total £5,468 per year for the average landlord, ultimately reducing their net income to £9,844 and their net yield to 3.4%. Despite this reduction, it's worth noting that this figure still surpasses the 3% mark from a year ago.

Additional Considerations for Landlords

The net yield calculation does not account for the expense of repaying a buy-to-let mortgage, which currently averages £1,201. Additionally, landlords must contend with the impact of inflation on the prices of furniture and appliances. Over the past year, the cost of electric cookers has surged by 12.3%, curtains by 8.8%, dishwashers by 6.7%, armchairs by 5.7%, washing machines by 5.2%, and wardrobes by 4.8%.

This dynamic landscape underscores the resilience of the buy-to-let market, even in the face of mounting expenses. As landlords navigate these challenges, strategic financial planning and prudent investment decisions will continue to be pivotal in ensuring sustained profitability.