Is buy to let worth it?

People will always need homes to rent and live in. However, there have been changes to mortgage relief and surcharge on stamp duty on second properties. Properties are becoming increasingly expensive to buy and to let to other people. These changes have made landlords question whether the buy-to-let market is still worth it now.

House prices are at a record high, and deposits are reaching as high as 25%. The buy to let market is dwindling as house deposits skyrocket and a 3% stamp duty surcharge is added to investment properties. In 2018, a whopping 73,300 buy-to-let purchase mortgages were taken out. In 2020, this number rapidly diminished, and only 64,500 were taken out. Buy-to-let properties are a massive tax drag and, perhaps, more money and effort than worth.

There is no longer mortgage interest relief for buy-to-let property owners. They cannot offset mortgage interest payments with income tax on rent. Landlords are given a flat-rate tax credit, which is determined by 20% of their mortgage interest. When filing their tax return, landlords need to declare the income used to pay their mortgage. Of course, this will increase their overall income on the tax return and result in a higher tax bill. With no interest relief and surging tax rates, landlords are seeing a significant drop in their profits. These changes will particularly impact higher rate taxpayers or those with interest-only mortgages. When buy-to-let owners sell their property, they also face much higher capital gains tax than other property investors.

However, there are some advantages to buy-to-let properties. With some professional advice from a letting agent, you can reap the benefits of being a landlord. You can receive substantial income from buy-to-let properties and may be able to secure a long-term revenue stream. You can generate capital growth as your money increases and may be able to look into investing in more properties as your business grows. You need to make sure you take out insurance to cover you against loss of rental income.

The location of your property can drastically impact how much money you earn. In the UK, Liverpool, Glasgow, and Leicester offer excellent rental yields that can reach 8%. However, other areas of the UK only come in at around the 3% mark. You can earn more money as your property increases in value.

It’s essential to invest in a location you know well while also choosing a town with a high rental yield. You need to find an area with a strong rental demand so you can find tenants and start earning income.

Investors need to research the area they are buying into. You need to know the local market and target demographic of the area. The buy-to-let market is a risky one to enter in some areas so use this great mortgage calculator to ensure it’s worth your while. Keep a close eye on the market and make the best decision for you and your finances.