Yearly returns on the average buy-to-let property in the UK were over £4000 lower in June 2023, compared to the same month last year, according to a personal finance site.
The research compared monthly average buy-to-let mortgage rates, house prices and rent prices in the UK to estimate the returns for someone signing up for a new mortgage deal at each point in time.
It found that if a landlord had taken out a two-year fixed-rate buy-to-let mortgage in June 2022, they would get an average monthly return of £609 from rental income after paying interest, totalling £7,312 over a year.
However, if they’d taken out the same mortgage in June 2023, they would get 59 per cent less in average monthly returns at just £250. This totals £2,995 over a year, a significant drop of £4,317 in yearly income.
Successive rises in the base rate have meant that mortgage rates are soaring, in the buy-to-let market as well as the residential market, driving the decline in average buy-to-let returns.
Average UK house prices fell by 1.6 per cent between September 2022 and June 2023, but the drop is not outstripping rate rises. Buy-to-let interest rates are still climbing rapidly and reached an average of 6.18 per cent in July 2023.
While the average UK house price in June 2023 was £287,546 according to the ONS House Price Index, the average buy-to-let mortgage rate for June 2023 was 5.45 per cent.
The rising cost of owning a buy-to-let property has made it far less appealing for landlords to sign up for a new deal.
In January to March 2023, the value of buy-to-let mortgage lending in the UK dropped by 40 per cent to £5.8 billion from £9.7 billion in the previous quarter.
The value of loans granted also dropped by 44 per cent when compared to the same period in 2022, when buy-to-let mortgage lending was £10.3 billion.
The share of homeowner loans granted for buy-to-let purposes was also just 9.8 per cent of total mortgage lending in the first quarter of 2023. This is the lowest share seen since 2011, which suggests that fewer people are looking to invest in buy-to-let properties at the moment.
Kate Steere, deputy editor and housing expert at Finder, says: “We're seeing a trend of landlords pulling out of the buy-to-let market as consecutive base rate hikes have made it unprofitable for them to continue. This will have a worrying impact on an already competitive rental market, leaving renters with fewer options and rising costs as they attempt to navigate the cost of living crisis.”
“Even though we’ve seen house prices start to come down, and 40 per cent of experts from our recent panel believe a housing market crash is on the horizon, any landlords who are coming off a fixed rate now will no doubt be put off by the staggering mortgage rates which are now over 6.0 per cent, compared to less than 2.0 per cent two years ago.”
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They forgot to mention the added impact of Section 24.
Hi Jo; pleased to help. easier on a different platform. we have a video on the subject but could offer something more specific. if you let me have your email address I can send you a link - not allowed here. Many will and have made sarcastic comments about my posts but this is what we do. remove s24 as an issue without contention.
i am unable to respond to Geraldine - but i know whats happened there. ask her if she received 'non-statutory clearance' before proceeding
Another reason to take action; most cost increases are unavoidable but S24 is. Planning optimally will remove this as a hindrance and, at the same time increase disposable income
Chris - I looked at your website last night and you may know the answer to this question.
I know that if you want to incorporate it has to be the whole portfolio.
How is that determined if you have assorted permutations of owners?
For example I own 7 properties jointly with my husband, one jointly with my son, 2 jointly with my husband and son, one jointly with my husband, son and ex, 2 solely as me and my husband solely owns one. Plus 2 more in a limited company of which my husband and I are directors.
Would it have to be all properties, even though my son and ex have no interest in incorporation, or could it be just the properties that are only owned by my husband and I? We currently have 6 different ownership structures for personally held properties. Is each one taken as it's own event or is it all lumped together?
God Lord Jo, I think I need a lay down after reading that lot......
Jo - the regulation about transferring the whole business is in relation to roll over relief - Section 162 of the Taxation of Chargeable Gains Act 1992.
That section states:
"162Roll-over relief on transfer of business
(1)This section shall apply for the purposes of this Act where a person who is not a company transfers to a company a business as a going concern, together with the whole assets of the business, or together with the whole of those assets other than cash, and the business is so transferred wholly or partly in exchange for shares issued by the company to the person transferring the business.Any shares so received by the transferor in exchange for the business are referred to below as “the new assets”."
Note that the legislative provision refers to the whole of the ASSETS of the business; it doesn't refer to all businesses which are owned.
In your circumstances I think I would contact HMRC self-assessment general enquries by phone, email or via their chat service. They should be able to explain the tax consequences of your circumstances. There are people who are expert in the subject in HMRC - just make sure that you speak to the right person.
Ellie that's all fine in theory. If you can actually speak to someone at HMRC how are you supposed to know if they are the right person and an expert in the topic?
My real point is is my portfolio regarded as one business or 6 different businesses? On a bit of a tangent if suddenly HMRC have decided BTL is a business why are they taxing it as investment income?
Good morning Jo,
When I have contacted HMRC with a complicated tax issue, the person to whom I have spoken from the relevant general enquiries number has put me through to their technical department. That is where the appropriate expert was in my case. You could ask to speak to somebody in the technical department.
It may be that YOU would have the option to decide if there were six different businesses and the one business comprising the seven letting properties which you own jointly with your husband was the only one that you had to incorporate. There would then be separate tax situations for your other businesses. You already own a limited company so don't you already have experience of the tax situation when there is a tax liability for the company and for an individual?
Isn't the main issue whether you are entitled to Section 162 Incorporation Relief on the properties you choose to incorporate? That may depend on how much time you spend on the seven properties you own jointly with your husband - is it twenty hours a week or more which was the number of hours established in the Ramsay case? Seven properties is a lot, so that would be in your favour, I would have thought.
With respect to your last question, I think HMRC decides about tax position/national insurance contributions based on whether you have a trade or not. A person who has a specific trade, for example running a hotel or a guest house meets the definition for gainful employment for self-employed NICs purposes and passes the trade, profession or vocation test for an Income Tax charge to arise under Chapter 2 of Part 2 of ITTOIA 2005 on their profits. Such individuals are liable to pay Class 2 NICs under section 11(2) SSCBA 1992 and are also liable to pay Class 4 NICs under section 15 SSCBA 1992, if their profits exceed the relevant thresholds.
This news plus all of the other obstacles that the authorities appear to want to throw at private Landlords.
If your fixed rate mortgage is coming to an end, or just ended there appears to be little option than to jump ship and put your hard gotten nest egg elsewhere.
If you own your letting property outright there might be some worthwhile profit in it but even then with the coming changes it is probably the time to get rid.
Chris Hayley you have now mentioned twice in different post that you have a ''planning solution " to S24. Please do divulge or is this a means to plug for other services you may provide.
I don't know what Chris's solution is but what some tax advisors advocate is setting up a limited company and transferring the beneficial interest of the properties to the company. That way you keep the title deeds and mortgages in your personal name. I wouldn't pay the tens of thousands that some companies ask for this advice/service. A competent solicitor who is perhaps 'into' property should do it for far less!
We paid tens of thousands for another way of putting all our properties into a limited company - this was before I knew about the above!
no plug, just stating a fact. a savvy landlord like you probably knows all about it anyway
Hope you don't mind Chris, here is the link to the video:
(3xW)(dot)youtube(dot)com/watch?v=QkVdvBWdDMM
We have to remember ONLY 40% of LLs have mortgaged property the other 60% could not give a ***t. That's why unfortunately we (I'm a leveraged LL in London) get luke warm support for a S24 removal petition recently of 40,000 signatories earlier this year.
HOWEVER the LLs where they are mortgaged ARE disproportionately affected in large metro city's where the capital purchase costs are high so these LLs are severely affected by S24 and high interest rates so are therefore selling. Which results in the city areas reducing PRS supply so for those willing to stick it out benefit from higher re-let and non leveraged LLs benefit from ' reduced' competition!
Less competition and higher rents, certainly works that way in Norwich
With the current "Conservative" government set to abolish fixed term tenancies, the rise in landlord costs means an inevitable tsumani of landlords selin up.. The government seens to think large "professional" landlords will buy up all the stock of ex small landlord's property while prices are dropping... We know what Labour (when they are elected) will do to the inevitable rise in rents.. Namely bankrupt landlords with price controls.. No fixed term tenancies and price controls have been tried before and we know the results.. Tenants suffer...
The Republic of Ireland is a great test case of what has happened to LLs since removal of Mortgage Interest relief.
They REINSTATED it in 2019 ( 10 years after removal)
But things are changing there rapidly as they are desperate to keep hold of PRS stock. Lets hope the Governments of any future colour look across the sea and LEARN from other mistakes when you red tape LLs and reduce their profitability
Dwin. I think the big boys are not interested in our properties it just our Business & Tenants they want.
They are not going to be bothered with an old Flat or House dotted around here there and everywhere with a lot of maintenance & up keep.
They’ll have to be the new ones that is going up in there tens of thousands look around you, Modular or not they’ll be new & complaint.
So no Houses or gardens to worry about. Just expensive Flats or boxes in the Sky and not suitable for families that can’t afford them anyhow. When I see what they are charging in Wembley & Greenford over £2’000. pm for a one bedroom Flat.
I have houses 4 and 5 bedrooms and licensed for hundreds less than that p m.
So they know they can’t compete with us, therefore they have to attack us by every unfair/ unjust means possible to clear the decks. The Chancellor would be a good yard stick of what they are about buy seven together easy manage & operate nice house Hunt.
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