Landlord Knowledge - Home of the Savvy Buy to Let Property Investor

UK landlords see profits despite government pressures

Recent research from Savills, published by The Times, suggests that the buy-to-let sector is no longer lucrative for landlords. However, Marc von Grundherr, Director of London Lettings and Estate Agent at Benham and Reeves, disagrees and provides a different perspective on the current state of the market.

Government policies and landlord challenges
In recent years, UK landlords have faced numerous challenges due to government policies aimed at attracting tenant votes. These measures have included the removal of tax relief, increased capital gains tax, higher stamp duty costs, and an amnesty for non-paying tenants during the COVID-19 pandemic. Additionally, a clogged court system has made repossessions difficult, and the failed Renters Reform Act sought to prevent landlords from reclaiming their properties. On top of these issues, rising interest rates have significantly increased buy-to-let mortgage costs.

Von Grundherr highlights the irony in this approach, noting that approximately 1.1 million tenants in the Private Rented Sector (PRS) receive housing benefits, effectively turning landlords into providers of social housing—a role that the government itself struggles to fulfil.

The profitability of being a landlord
Despite these challenges, von Grundherr argues that being a landlord remains profitable. He points out several key factors that support this claim:

  1. Mortgage-free landlords: Over a third (38%) of landlords do not have a mortgage, so increased interest rates do not impact them.
  2. Historical interest rates: At 5.25%, the Bank of England base rate aligns with the historical average over the past century. Experienced landlords recognise these rates as ‘normal’ rather than ‘high’.
  3. House price growth: House prices have surged by 54% in the past decade and 152% since 2000, yielding an annual return of 6%, which outperforms the average inflation rate of 4.4% over the last five years.
  4. Rising rents: Since 2014, rents have increased by 31%, with tenant demand higher than ever.
  5. Housing shortage: New home construction is lagging behind demand, creating a significant shortage and making existing properties more valuable.

Von Grundherr also mentions prominent figures like Alan Sugar, Donald Trump, and Ellen DeGeneres, who have made substantial fortunes through property investment, underscoring the enduring profitability of the sector.

Real yields and long-term benefits
Rental yields are often understated because traditional analysis compares annual rent to the current property value. Many landlords purchased their properties years ago, so today’s higher rents yield a greater return on the original purchase price. For example, a 5% yield today might be closer to 7% for properties bought in 2014.

Reasons for optimism
Despite the negative outlook painted by recent research, von Grundherr believes there are ample reasons for landlords to remain optimistic. Capital appreciation, rising rents, a housing shortage, and strong tenant demand are significant positives. For landlords who have held their properties long-term, actual yields are even more attractive, providing compelling reasons to stay invested in the sector.