Buy-to-let property investment: do your sums

By | 08 August 2013

A shortage of affordable homes and squeezed incomes has led to a drop in the number of first-time home buyers, according to data from the Council of Mortgage Lenders (CML). In contrast, the CML found a huge expansion of the buy-to-let sector, there were 400,000 buy-to-let loans worth £39 million in 2003, compared to 1.45 million loans worth £164 billion in 2012.

Although rising rents and increased demand for rental properties are an attractive option for buy-to-let investors, with many returning to the market, the returns now are smaller than those a decade ago. According to research from YouGov SixthSense, landlords received 4-6 per cent in rental returns between 2002 and 2006; falling to between 1-4 per cent since 2007. The profit from capital gains has also fallen, with landlords seeing 15 per cent in capital gains before 2003, 7-8 per cent between 2003 and 2006, and less than 4 per cent since 2007.

Many landlords also have 'unrealistic expectations' of the profit to be made from buy-to-let investments by failing to take inflation into account. Other deductions from rental income include mortgage interest payments, agency fees and other management expenses.

Simon Mottram, YouGov's financial services consulting director, said many buy-to-let landlords had unrealistic expectations of the amount of money they would need to invest into their properties, as well the likely returns.

He said: "The money illusion can mask a great deal of risk that people can put themselves in because of falling returns from increasing inflation as well as the cost of additional expenses. Potential buy-to-let landlords should go into property ownership with their eyes open, being aware of the costs and potential pitfalls as well as the possible gains."

For more information, please contact Debbie Wilson

Get in touch today

Milton Keynes office

Chancery House
199 Silbury Boulevard
Milton Keynes

T + 44 (0)1908 232020
F + 44 (0)330 024 3300

  • logo-02
  • ICAEW_CharteredAccountants_BLK_RGB1
  • logo-05
  • logo-06

Hillier Hopkins is a trading name of Hillier Hopkins LLP, which is registered as a Limited Liability Partnership in England & Wales, No. OC303707. Registered Office: Radius House, 51 Clarendon Road, Watford, Herts WD17 1HP. Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England & Wales. A list of members of the LLP is available at the above address. HH and Hi logos are trade marks belonging to Hillier Hopkins LLP. © Hillier Hopkins LLP.