Buy to Let Investing: Is It Still Lucrative?

Buy to Let Investing


There are some who would have you believe that the buy-to-let died a premature death a couple of years ago. Indeed, 2016 brought about a significant slowdown in the buy-to-let market in the UK, following approximately two decades of growth. Nevertheless, this doesn’t necessarily mean that the market as a whole has run out of steam.

Even with the introduction of a stifling bureaucracy for landlords and a 3% additional stamp duty charge, there’s still money to be made. Whether the buy-to-let market is lucrative or not comes entirely down to the decisions made by the investor. Not to mention when and where they make their decisions, along with how they fund their property purchases.

The past few years have brought about a notable reduction in the number of ‘casual’ buy-to-let landlords. That being, those who own just one or two additional properties and,  in significant volumes, have cashed in on their investments and taken their money elsewhere. It’s clear that the buy-to-let sector in the UK is becoming increasingly professionalised, but this doesn’t mean it can’t hold enormous potential for those who are willing to commit.

For one thing, analysts point out that as casual buy-to-let owners depart the sector and investors in general remain cautious, there is significantly less competition among would-be buyers than there was previously. This in itself represents a potential benefit for those considering getting into buy-to-let operations. Not only this but even at a time when capital growth isn’t nearly what it was over the past 20 years, the income that can be generated by investing in the property market still has the potential to outperform many other classes of assets.

Roughly translated, the buy-to-let boom may have come and gone, but this doesn’t mean the end of lucrative buy-to-let investment opportunities in the United Kingdom.

A question of locality

As has always been the case, it primarily comes down to location. It’s just that as things become somewhat trickier and more restrictive, investors need to select properties and locations more carefully than ever before. For example, a recent rental tracker published by Your Move indicated strong rent yields of approximately 5% in the Northeast and just under 5% in the Northwest, significantly ahead of inflation at 1.8%. By contrast, 10-year UK government bonds pay an income of 1.3%.

The government’s decision to raise second home stamp duty was motivated by the desire to free up inventory for movers and first-time buyers. an initiative that apparently worked, resulting in more supply becoming available. Nevertheless, demand for quality rental properties across the United Kingdom remains elevated and continues to accelerate. It’s estimated that approximately 19% of households (approximately 4.6 million) rent their properties from private landlords. Many younger demographics prefer the flexibility of renting over the responsibility of buying, while others simply do not have the luxury of choice.

Access to finance

Potentially lucrative buy-to-let investments continue to exist across the United Kingdom. One of the barriers typically standing between would-be investors and buy-to-let property ownership is access to finance. The vast majority of major lenders have tightened their roles and lending criteria significantly over recent years, disqualifying many who would previously have been considered eligible. Even when applicants have the means to qualify, they may not be able to come up with the sizeable up-front deposits needed to secure the loan.

This is one of the reasons why buy-to-let investors are increasingly turning to bridging loans or alternative funding solutions. Specialist lenders across the UK are compensating for the strictness of the High Street with an increasingly flexible and accessible portfolio of secured lending products.

It can be a tricky balancing act to pull off, but the right buy-to-let property in the right location at the right price funded in the right way can still add up to a lucrative investment.