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Could landlords really earn £162,000 from buy to let?

Research claims long-term investors could enjoy significant yields

Despite tougher lending restrictions and taxation changes in the buy-to-let market, property can still be a profitable investment over the long term, new research suggests – but how likely are you to profit from buy to let?

Data analysis from specialist lender Kent Reliance claims that over 25 years landlords can enjoy profits of £265,000 per property through capital gains and rental income – a total gain of £162,000 in today’s money.

Here, we take a look at the data and consider whether buy to let really does remain a sound investment for those willing to play the long game.

  • If you need some impartial, expert advice on mortgage options for your buy-to-let portfolio, call Which? Mortgage Advisers on 0800 197 8461.

Buy-to-let gains depend on your tax band

Landlords have had a tough time of it lately, with tighter affordability rules, mortgage interest tax changes and stamp duty surcharges significantly eroding profits.

Despite this, the research claims that investors could still make significant returns, although higher-rate taxpayers stand to make much less than those paying the basic rate.

Basic-rate taxpayers

This data from Kent Reliance claims that on a 25-year investment (with a 30% deposit), a basic-rate taxpayer will make £265,000 in capital gains and rental income.

This is assuming that house prices and rents increase by 1% each year, and takes into account mortgage finance costs, maintenance and running costs – but not any home improvements.

Higher-rate taxpayers

Those who pay tax at a higher rate face a heavier burden, largely due to changes to mortgage interest tax relief, which are being phased in until 2020.

The data shows that these taxpayers will pay £88,000 over the 25-year period, significantly more than the £58,600 they had have paid before 2015.

This means projected returns are then reduced to £203,000 – a quarter less than basic-rate taxpayers.


Regional variations in buy-to-let profits

While the average projected profit over 25 years for the whole of Great Britain is £265,650 – or £161,922 in today’s money – this varies massively from country to country and region to region.

For example, Scottish investors stand to make £137,421 per property – while those in Wales may only benefit from an £82,871 uplift.

Region  Typical deposit Initial rental income (year) Total rental income (25 years) Capital gains (25 years) Profit in today’s money
Scotland  £52,818 £8,710 £317,557 £192,574 £137,421
Wales  £37,835 £5,112 £186,398 £137,943 £82,871

And as you might imagine, the data for England is skewed by the London rental market.

The typical deposit of £158,225 paid by investors in London is almost double the second highest (£81,301 in the South East of England) – and this is reflected in the projected profits on offer to those risking more cash in the capital.

Region  Typical deposit Initial rental income (yr) Total rental income (25 years) Capital gains (25 years) Profit in today’s money
London £158,225 £19,416 £707,876 £576,878 £307,887
East of England £70,153 £8,844 £322,451 £255,774 £142,795
South West £60,894 £8,245 £300,614 £221,905 £132,331
Yorkshire and The Humber £37,712 £7,032 £256,364 £137,494 £110,218
North West £36,883 £7,090 £258,514 £134,472 £110,864
South East £81,301 £9,964 £363,274 £296,417 £160,774
North East £29,512 £4,389 £160,027 £107,597 £70,709
West Midlands £45,027 £7,260 £264,693 £164,166 £115,002
East Midlands £44,759 £7,588 £276,665 £163,188 £119,612

The costs of buy-to-let investment

Buying and running an investment property is an increasingly expensive business, with the research from Kent Reliance showing that investors could spend £373,000 per property over 25 years – that’s 58% of their total income and capital gains.

This is based on a basic-rate taxpaying landlord contributing £99,600 in tax – made up of £60,000 in capital gains tax, £29,000 in income tax and £10,000 in stamp duty.

Mortgage finance is the most costly expense for landlords, with bills running to £157,000, while maintenance comes in at £72,000.

Does this mean buy-to-let investment is a good idea?

While these figures offer a theoretical boost to embattled buy-to-let investors – they can’t factor in unexpected twists in the market and wider economic conditions.

For example, if the rental market continues to slow there’s no guarantee of capital growth or increased rental yields – even at the low level projected here.

On top of this, uncertainty surrounding Brexit could continue to have an impact and there’s no telling how that is likely to affect the wider British economy.

Following a slew of legislation that has decreased the attractiveness of buy-to-let, there’s also the possibility of further regulation affecting profits (including an upcoming lettings fee ban, which is currently before parliament).

This means that while buy to let can be profitable, it’s best practiced by committed investors who are in it for the long term.

In light of these challenges, it’s no surprise that some landlords are selling up – a recent survey by the National Landlords Association found that 19% of landlords plan to offload at least one property in the next year.

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