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NEWS: Is Investing in a Buy to Let Still Worth it in 2024?
Investing in a buy to let has the potential to generate high ROI through both rental income and building equity, but amid the current costs of owning a property, many are asking if being a landlord is still worth it.
A number of landlords are expressing dissatisfaction with slim profits and rising legislation surrounding rental market, with claims that owning a buy to let is no longer rewarding.
Inflation and high interest rates have been eating into rental yields, which, combined with stringent legislation, have allegedly caused a number of private landlords to exit the market.
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So, where does this leave those who are considering investing in a buy-to-let property and landlords who are thinking about expanding their portfolios in 2024?
Are Landlords Still Investing in Buy to Lets?
The early months of 2024 did see a sudden increase in buy to let purchasing activity, potentially brought about by an overall slump in house prices and indications that interest rates will soon drop.
In February, data from Paragon Bank revealed that 37% of portfolio landlords plan to expand their property portfolios this year. Mortgage interest rates are still high, but property prices have dropped slightly across the country. Those who are willing to take the financial hit to get a bargain are tentatively re-entering the market.
Andrew Bailey, Governor of the Bank of England, further confirmed that a base rate drop could be on its way: “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgment afresh...But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.”
Last year’s economic climate led to slow purchasing activity throughout the year, as both first-time homebuyers and property investors waited out high interest rates. However, some regions are proving more resilient in the current market, with property prices continuing to grow and rental markets flourishing. Manchester, Birmingham and Durham are some of the most popular areas for landlords to purchase property in 2024.
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See the latest market news below.
Where Are the Most Affordable Places in the UK to Buy a Home?
House prices are rising, but not as rapidly as they were before 2022.
In 2024, we did see a modest rise in house prices, but since the budget, this has come down slightly. The Bank of England base rate has dropped, but mortgage deals don’t seem to be moving in response to the Autumn Budget, which has since been widely considered inflationary.
As the housing market begins to recover from the past four years of economic turbulence, there seems to be a case of push and pull between house prices and interest rates restricting affordability.
Limited affordability has caused a visible divide between the UK’s most and least affordable housing. And unfortunately, in more expensive areas, first time buyers aren’t getting to enjoy much of a drop in house prices because the difference is made up by high interest rates and less favourable mortgage deals.
Mortgage rates have come down slightly from their 15-year high, and while the housing market does seem to be on the mend, it’s still not the easiest time to buy property for first-time buyers and investors alike.
For buy to let investors, regulations have gotten stricter since 2022, and high mortgage rates have thinned profit margins, making owning a standard buy to let a trickier affair than a decade ago.
While house prices have dropped slightly due to lack of affordability across London and the rest of the South, this isn't the case in other regions.
But this isn't the case everywhere in the UK. The North of England has seen entirely different purchasing behaviour to the South since the early 2000s. In select areas, particularly Yorkshire, North Lincolnshire and Durham, you can still easily buy a property for under £100,000.
Due to affordable housing and cheaper living costs in these areas, most of Northern England and Scotland have been resistant to the housing slump that the rest of the UK has experienced in response to high mortgage rates. The property market in these regions has remained robust and has seen growth throughout 2024.
There's certainly hope, both for property investors and those looking to get on the housing ladder. If you're looking to invest in a buy to let in 2024, it may be worth looking in affordable areas with a consistent rental demand, such as university towns or areas close to large employers. Property hotspots like these are still reaping generous rental yields while the rest of the country is seeing slow growth.
For first-time buyers, house prices coming down significantly could make it much easier for them to get on the housing ladder, but in many cases, house prices going up is beneficial for those using equity in their homes to make another purchase.
Increasing ROI for Your Buy to Let
It’s true that the current buy to let market is not without its faults, but there are many options out there that can help you boost your ROI over time.
Invest in an HMO
HMOs typically generate higher rental yields compared to single-let properties, as multiple tenants each pay rent for their individual rooms, resulting in a collective income that often surpasses the rent of a single-family home.
This diversified income stream reduces the financial risk associated with tenant vacancies, as the loss of one tenant still leaves the landlord with income from the remaining tenants.
Additionally, the demand for HMOs is robust, driven by students, young professionals, and low-income individuals who prefer the affordability and flexibility of renting a room rather than an entire property.
HMOs also benefit from favourable tax treatment, including the ability to claim multiple tenancy-related expenses. Moreover, properties that qualify as HMOs often appreciate in value due to their high rental income potential.
While HMOs require compliance with specific regulatory standards and may involve more intensive management, the financial rewards and market demand make them a compelling choice for property investors in the UK.
Related: HMO Mortgages - How to Finance an HMO Property & How to Convert A Buy to Let to an HMO
Buy in Higher Yield Areas
Property hotspots such as London, Brighton and Bristol are renowned for having a particularly competitive housing market, but while buying a property in a growing city offers the opportunity to build equity and significant returns when it’s time to sell, purchasing a property in these areas can be expensive, which reduces your rental yield.
Cities like Newcastle, Sheffield and Nottingham have affordable housing options, and they’re also university cities offering a strong rental demand from students and young professionals.
This higher yield represents a better return on investment because you're earning more rental income relative to the amount you invested in purchasing the property. Acquiring a cheaper property can significantly enhance your rental yield, making it a more profitable investment.
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Furthermore, demand from both students and locals makes it easier to find tenants.
EPC Loans
An Energy Performance Certificate (EPC) loan can significantly increase return on investment (ROI) in the long run by enhancing a property's energy efficiency, thereby reducing operational costs and increasing its market appeal.
By using an EPC loan to fund energy-efficient upgrades such as better insulation, modern heating systems, or renewable energy installations, landlords can lower utility bills, which is an attractive feature for tenants seeking affordable living.
Energy-efficient properties often command higher rental prices and experience lower vacancy rates, as they appeal to environmentally conscious tenants and those looking to reduce living costs.
Additionally, properties with higher EPC ratings are less likely to face future regulatory challenges as governments push for greener building standards. Over time, these benefits lead to higher rental income, reduced tenant turnover, and potentially increased property value, all contributing to a higher ROI.
How to Get a Buy to Let Mortgage
At Clifton Private Finance, we have established relationships with high street, private and specialist mortgage lenders that can offer bespoke mortgage solutions. Using our knowledge and expertise, we have access to the best buy to let mortgage rates available on the market today.
We are trusted by the lenders we work with, so we can acquire preferable mortgage rates for our clients that wouldn't be available on the high street.
We can also advise you on what kind of mortgage is right for you and walk you through the steps to preparing for your property purchase.
All our advisers are fully qualified, and our advice is authorised and regulated by the Financial Conduct Authority, so you know you’re getting help you can trust.
To see what we can do for you, call us on 0117 205 4829 or book a free consultation below.
