Investment in Buy-to-Let properties is booming because inexperienced landlords are moving towards more professional portfolios. At the same time, professional landlords are restructuring investments to add additional homes to their portfolios.
What Is Driving the Buy-to-Let Trend?
Buy-to-let refers to purchasing properties for the sole purpose of renting to tenants. Investors usually turn to buy-to-let investments when they believe they can earn high rental yields or sell properties for great profit in the near future.
Buy-to-Let Options and Lower Rates
There are more than 2,700 mortgage options for landlords to choose from. Average mortgage rates are lower than they were in 2019. That is fantastic because landlords can remortgage at the end of a two-year fixed loan to benefit from lower rates.
Low-Deposit Mortgages and High Returns
Loan-to-value mortgages deals of 80% are back, enabling borrowers to invest with small deposits when entering the buy-to-let space. As tenants essentially pay off the mortgages, buy-to-let has become an attractive investment.
With housing prices showing rapid growth, proprietors can see a good return on investment (ROI), even with the increased capital gains tax rate (18-28%) on sales. For instance, the average landlord who sold their buy-to-let in 2020 received £78,010 more than they paid for it, which is a remarkable ROI.
Rental Demand is Higher
The buy-to-let market was slow in 2021 as stamp duty cuts resulted in higher house pricing. Accordingly, the higher housing prices resulted in a record number of new prospective renters looking for properties.
According to Hamptons, rental prices have grown 8.5% year-on-year throughout June 2021. The average rental price for a home in Great Britain is £1,092, following significant increases in rental costs in the South East and South West. London rentals are still the most expensive, with average rents of £1,751. As 40% of properties in the average portfolio are owned outright, landlords are taking advantage of higher rental yields.
Landlords are Expanding Their Portfolios
A survey completed by Foundation Home Loans found that 30% of owners plan to remortgage over the next year to release equity, possibly towards future property purchases and higher ROI.
Circumventing Tax Hikes
Recently, buy-to-let landlords felt the brunt of a 3% stamp duty surcharge and higher capital gains tax bills. Additionally, the new tax legislation threatens residential landlords with higher capital gains tax bills than other investors when they sell. Yet, proprietors can mitigate these changes by investing via limited companies to obtain mortgage interest relief. According to Hamptons, 41,700 new buy-to-let limited companies were formed in 2020.
Consequently, buy-to-let is booming. While this model isn't for everyone, landlords find that bricks-and-mortar remains a solid investment choice. Complete your research to ensure your portfolio matches your investment goals.