Landlords who entered the buy-to-let market five years ago are unlikely to have made any money at all – and could be counting their losses.
Those with buy-to-let mortgages are making losses on their investments, while cash buyers are unlikely to make profits.
The warning has come from financial consultant Brian Hall, founder of The Model Works and who specialises in reports on the housing market.
Hall criticised data from the Association of Residential Lettings Agents which shows stable buy-to-let profits, describing it as ‘incomplete, inaccurate and biased’.
Hall’s model uses house price indexes and mortgage data, and also factors in costs such as Stamp Duty, fees, arrears and management costs. While ARLA projects returns over the next five years, Hall looks back over the last five years and calculates the returns should the property be sold now.
His numbers show that anyone who had bought a typical buy-to-let property five years ago would have made a net yield loss of £9,811. After ten years, the net yield becomes a profit of £10,239, climbing to over £29,000 in 15 years.
Hall said: “If you read the numbers you can see geared investors are making a loss and cash buyers are making no profit at all. It is crucial someone making such an important decision is properly informed.”
ARLA defended its own reporting. It said: “The ARLA Review and Index is based on surveys conducted among ARLA members and investor landlords. It is independently written and includes clear details on the methodology used.
“The index model used has provision for altering assumptions for different scenarios and is one of a number of reports across the property industry.”
However, Hall’s report comes as another – from BDRC Continental’s landlords Panel – shows that a landlord in central London would rack up £8,071 per year in maintenance, insurance, fees and other costs, excluding mortgage repayments. In outer London, the costs would be £7,870.
The panel findings show that just under one-quarter (23%) of private landlords letting out property in inner London spent over £5,000 on maintenance in the last 12 months. Insurance was the next highest cost with 14% of landlords spending £2,000 or more, and 12% spending the same on agent fees.
In outer London, maintenance has cost almost one-quarter (24%) of private landlords over £5,000, 11% spent £2,000 or more on agents, and 5% spent the same amount on accountants. Although spend on insurance is lower, the amounts spent on letting fees are higher.
Mark Long, director for BDRC Continental, said: “There are a lot of costs associated with being a private landlord, not least maintenance, insurance and professional advice from accountants and solicitors.
“However, our survey tells us that the market for private rental across London is strong and landlords feel positive about their prospects, so despite the costs, the market for letting property in the capital in London remains buoyant and profitable.”