Is Buy-To-Let Property Still a Good Investment? The Latest Market Trends

As property experts; we’re frequently asked, by current investors and those considering becoming landlords whether ‘now’ is a good time to invest in buy-to-let properties.

So, where do we stand with buy-to-let investments? What’s happening in the rental market? And IS property still a sound investment? In this blog, we reveal all.

Historical data indicates that most properties have appreciated significantly over time. Generally, you can expect substantial capital growth if you hold a buy-to-let investment for at least 10-15 years. The past year has been particularly favourable, with average house prices in the UK increasing by around 10%, and even higher gains in some regions.

However, being a landlord involves more than just capital growth. Successful investors focus on generating enough monthly rental income to cover ongoing costs such as maintenance, mortgage payments, letting agent fees, and taxes, while still yielding a profit.

Rental income is the cornerstone of buy-to-let investments, and the good news is that tenant demand has remained robust over the past few years. Zoopla’s report for Q3 2023 revealed that rents (excluding London) had increased by an average of 7% over the previous 12 months, while Rightmove’s data for the same period showed an even larger annual rise of 9.2%—the fastest rate of increase they’ve ever recorded.

Zoopla’s research indicates that tenant demand continues to outstrip the supply of rental properties, which is currently around 43% below the five-year average. We’ve observed that high-quality rental properties are letting quickly at the asking rent, and we expect this strong demand to continue over the coming year.

Ok, but why am I hearing reports of landlords leaving the market?

Some landlords are indeed cashing in their investments, but many are doing so because they’ve had their buy-to-lets since the 1990s and always planned to sell at a certain point. While some landlords are discouraged by the increasing legislation and higher taxes on property investors, leading them to exit the market, others are actively expanding their portfolios.

At the same time, we’re seeing a rise in institutional investment—large companies and investment funds entering the buy-to-let market, particularly in the growing ‘build-to-rent’ sector. For instance, Lloyds Bank plans to purchase 50,000 properties by 2030, and John Lewis is partnering with developers to build around 10,000 rental units.

With major financial players anticipating increased demand for quality rental homes, this is a strong indication that buy-to-let will remain a solid investment for years to come.

Are there any particular challenges to look out for this year?

One key challenge for landlords this year is tenant affordability. With the cost of living rising, especially due to significant increases in fuel prices for heating homes, tenants may need to allocate more of their income to essentials like food and fuel. This could reduce the amount they can afford to spend on rent.

While we don’t anticipate a drop in average rents, it’s prudent to budget for the possibility that you might not be able to raise your tenants’ rent in line with inflation or your own increased costs, which could result in lower monthly profits.

Given the rise in the build-to-rent sector and the squeeze on tenant affordability, traditional buy-to-let landlords are likely to see the best returns from capital growth over the long term.

Do You Have Clear Investment Priorities?

While making money from buy-to-let in the short term through monthly profit is possible, it’s crucial to have the right strategy from the outset. This involves deciding the level of profit you want and when you want to realize it, then matching the property, location, and type of let to your investment goals.

Consider An HMO

If generating a monthly income from buy-to-let is a priority, consider a House in Multiple Occupation (HMO). In this type of rental, several unrelated people live together and share communal facilities such as a kitchen, bathroom, and living room. Since tenants have the exclusive use of one private room while accessing the larger home’s facilities, landlords can charge a higher pro-rata rate per room compared to letting the same property to one family.

One example of an HMO is a ‘student let’, where groups of friends share a house, sign one tenancy agreement, and pay utility bills themselves. An even more profitable model can be a ‘professional multi-let’, where each bedroom is let on a separate tenancy agreement to working adults for an all-inclusive rent – meaning you, as the landlord, pay the utility bills. While this model involves more management and higher monthly costs, it can yield double or even triple the monthly profit compared to letting the same property to one family.

The trade-off for this higher monthly profit is that HMOs generally don’t appreciate in value as much as single-let family homes. They are often in less desirable locations and may require work to convert them back into traditional homes.

On the other hand, while single lets might not generate as high monthly returns, they tend to be easier and less costly to manage and may provide better capital growth profits.

For more information and advice on choosing the right kind of let for you, see our blog, ‘Multiple Occupancy vs Single Lets’.

Key Takeaways

Overall, buy-to-let should remain a good financial investment for many years, with the most professional landlords seeing the best returns. In our experience, the most successful landlords:

• Understand that the best returns—particularly for single-let properties—are likely to come from long-term capital growth.
• Have clear investment goals and conduct thorough research on what kind of rental property can help them meet those financial objectives.
• Work with local letting and management agents to ensure their properties are always legally let and professionally managed.
• Stay informed about market trends and strive to provide the high-quality accommodation that the best tenants seek.

Get In Touch

To find out more about the rental market in your local area, simply get in touch with us at any time. We are more than happy to talk through your investment plans and discuss both current and anticipated supply and demand, to help you make an investment that’s right for you. Simply give us a call or fill out our contact form and a member of our team will get back to you as soon as possible.