x
By using this website, you agree to our use of cookies to enhance your experience.
STAY CONNECTED!
    
newsletter-button

TODAY'S OTHER NEWS

The average BTL investment makes a return of just £2k a year, claims Howsy

Howsy has issued a stark warning over the health of the UK’s private rented sector as tax and regulation changes continue to have a negative impact on the buy-to-let market.

New research by the lettings platform has looked at the true cost of being a landlord and how the profitability of the buy-to-let sector has been squeezed by the introduction of government legislation in addition to the other costs associated with an investment. 

Mortgage interest relief changes under Section 24, the scrapping of the ‘wear and tear’ allowance and the introduction of the 3% stamp duty surcharge have hit landlords’ profits over the past couple of years, which largely explains why so many people are exiting the buy-to-let market and thus reducing the supply of much needed private rented stock. 

Howsy has calculated that landlords are left with an average of just £2,140 from an annual return of £13,000 because they are paying out for so many hidden costs. 

The research also shows that initial start-up costs of stamp duty average £6,663, while agency fees to find a tenant cost an average of £811, totalling £7,475. 

According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy, that is an average of £535 a year, according to Howsy. 

What’s more, 73% of landlords buy a property with a mortgage and each and every year will see £6,921 paid out in interest as a result.

Couple these costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 and you’re talking £11,147 per year.

Based on an average annual rental income of £8,112 divided by the average buy-to-let property cost of £183,278, the average yield available is 4.4% - that’s an annual sum of £8,119.

Over the last decade, Howsy claims that capital appreciation of bricks and mortar has averaged an increase of 2.85% a year, £5,223 in monetary terms. That means buy-to-let landlords are seeing a return of £13,343 up on their investment.

However, leaving start-up costs and unforeseen events such as evictions out of the equation, once the average landlord in the UK has paid just the ongoing costs associated with a buy-to-let property each year, they are left with a profit of just £2,140, the research claims.

Cost Headings

Cost Amount (£)

One-Offs Costs:

£7,474.54

Ongoing Costs:

£11,147

Average Annual B2L Return:

£13,287

Average Annual B2L Return - Ongoing Costs

£2,140

Costs Explained…

Cost Headings

Cost Amount (£)

Notes/Sources

One-Offs Costs:

SDLT

£1,165.00

Initial stamp duty owed - Gov.uk

SDLT second home penalty

£5,498.34

Additional 3% - Gov.uk

Agency fees (tenant find)

£811.20

The minimum tenant find fee according to Which?

Total

£7,474.54

Ongoing Costs:

Void periods

£527

23.75 days a year on average according to GoodLord

Mortgage Interest

£6,920.73

73% of B2L landlords have a mortgage according to Which?

Agency fees (management)

£1,622.40

The average annual management fee according to Which?

Maintenance & Repairs

£2,077.00

Average cost according to Pennington

Total

£11,147

Positives:

Basis:

Avg annual rent

£8,112

Monthly average rent of £676 multiplied by 12

Avg B2L mortgage amount

£132,075

According to UK Finance

Avg house price

£183,278

Average B2L price according to Money Supermarket

Avg LTV

72.06%

Avg equity

£51,203

Return:

Annual Yield %

4.4%

Average annual rent divided by average B2L house price

Annual Yield £

£8,064

Average B2L house price multiplied by 4.4%

Capital appreciation per annum %

2.9%

Based on average property price change per annum over the last decade

Capital appreciation per annum £

£5,223

Source: ONS 

Average Annual Return

£13,287

Ongoing Costs

£11,147

Final Annual Return

£2,140

Poll: Do you make more than £2,140 a year profit per BTL property?

PLACE YOUR VOTE BELOW

Tags:

icon

Please login to comment

Zero Deposit Zero Deposit Zero Deposit
sign up