Is Buy to Let Still Worth It for Landlords and Investors?

Estimated reading time 6 minutes

Certainly, there is a lot to consider, the changes to mortgage interest relief, the surcharge on stamp duty for second homes and what feels like the ever-increasing cost of funding.

What is the mortgage interest relief on buy to let?

If you are new to buy to let you will discover interest relief on your mortgage interest payments is a flat 20% previously higher rate tax payers would have received tax relief on their interest payments at their marginal rage of tax, potentially as high as 40-45%.  Had you been receiving the higher rate of tax relief your net profit would have been severely hit. On the flip side if you were a landlord with a lower income the playing field is now le

What is the surcharge on stamp duty for second homes?

You’ll usually have to pay 3% on top of Stamp duty rates if buying a new residential property means you’ll own more than one.

If you’re not present in the UK for at least 183 days (6 months) during the 12 months before your purchase you are ‘not a UK resident’ for the purposes of stamp duty and that means you will usually pay a 2% surcharge.  If you have to pay the surcharge, you’ll also have to pay any other rates of SDLT that apply, for example.  If you already own a property and you’re buying an additional property.

How do buy to let mortgages work?

The minimum deposit for a buy to let mortgage is typically higher than a standard, residential mortgage – usually at least 25% of the property’s value but this can vary between 20-40%.

Most borrowers take out an interest-only mortgage for their chosen property – so you’ll pay the interest each month, but not the full capital amount.

At the end of the mortgage term you’ll repay the capital debt – the full amount of the mortgage

How to work out rental yield?

To calculate the yield on a rental property, you’ll need to divide the annual rental income by the price of the property and then multiply this by 100.

It’s essential that your rental income covers the running costs of the property. This includes mortgage repayment, wear and tear and any other lettings expenditure you are likely to incur.

In the past most property investors aimed for a rental yield of around 5-8%. 

Where is attractive for buy to let?

For investors, Birmingham offers some of the best rental yields in 2022. It is a rapidly growing city that continues to attract skilled professionals. According to relocate to Birmingham there are more international companies in Birmingham than any other city outside London. The ratio of property prices to average rents make this a lucrative city to purchase a buy to let property.

Liverpool property investors can expect to enjoy some of the best rental yields in 2022, with figures reaching 10% in some areas. In 2021, average rental prices in the city increased by over 6%.

Manchester where almost one third of the population are private renters. Despite high demand for places to live property prices remain comparatively low. The combination of high demand for a rental property and property that is affordable for an investor makes it a good city to purchase buy to let properties.

Leeds offers plenty of opportunities given the diverse cross section of renters. The average asking price of property in Leeds was £240,000 in August 2022 and average monthly rent around £1,503. Meaning, it delivers an impressive yield of 7.5%.

Keep in mind while the property price may be low, there needs to be potential for house price growth and tenant demand in the area in order to get the best possible return for your investment.

What else should I consider when choosing a property to buy to let?

Decide which type of tenant you want for your property. Students, families and young professionals each have different requirements for a property, and therefore different considerations for the property location.

If you are managing thinking of managing it yourself then you will want it to be close by. If you are planning on using a letting agent then you can look further away in areas.

Consider how you intend to make a profit on your buy to let property, if you are buying in the hope that property prices will increase and the rental income just covers the costs until you sell buy to let property at a profit. Or whether your focus in on building profit through rental income.

What to consider before purchasing a buy to let?

Please factor in the additional costs stamp duty, insurance, annual maintenance and the increasing costs of regulation. It is important that the income you make from the property not only covers the mortgage repayments but it also covers the above expenses.

Bear in mind because of the higher interest rates and the increase in inflation the housing market may start to cool and property prices may fall. If property prices do start to fall and your property decreases in value, when you come to sell it if you had an interest only mortgage you will need to make up the short fall.

Three is no guarantee that your property will be rented out immediately and, while it is not occupied you will have to cover the costs of the mortgage payments and pay any other bills.

In conclusion

There is still money to be made in buy to let, just make sure you choose a property that suits the type of prospective tenant you are looking for, in a city that is popular with young families, young professionals and students as they will push up demand and therefore rent.

How can Gaffsy help?

If you are investor that is thinking is my buy to let worth it? If the yield no longer covers the costs that are associated with it then probably not. If you find your-self coming to this conclusion then give Gaffsy a call we can help. If you just decide you no longer want exposure to this market call us. Gaffsy will make you a free cash offer today.

If you are thinking of selling it now we buy any house, regardless of its location, size, and condition. We can work with you to help you sell your house fast, even if it isn’t your primary residence. Contact us today on 0207 459 4546.

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