Is it still worth being a landlord?

The property market for landlords has been experiencing a lot of changes in recent months. After the interest rate hikes, many landlords have been questioning whether it is still profitable to continue being a landlord.

They are curious to know if the business of being a landlord is still worthwhile.


Why is it difficult to be a landlord

It takes a lot to be a good landlord and you don’t mind that but there needs to be some measurable rewards in the end.   However recently it is beginning to feel a bit burdensome hence many of you are leaving the market.

There is the renters reform bill which is currently (February 2024) at the “committee stage” in the House of Commons.  What’s more new licensing schemes are being introduced by local authorities as they continue to struggle financially.  Both these moves are going to add more legislative burdens to landlords and affect their finances.

We were anticipating a decrease in interest rates this month which would lead to lower buy-to-let mortgage rates. Many lenders had already started to lower the rates in anticipation. However, the interest rates did not decrease as expected and it is unlikely that they will decrease soon. This is because it is widely expected that inflation will increase in February. So, high mortgage rates continue to be a problem.

From a tax perspective, the curbing of tax relief on mortgage interest was a huge blow to many landlords.  Mortgage interest is now restricted to 20% which is fine if you are a basic rate taxpayer but not if you pay tax at 40% or 45%.

It is mainly, for this reason, many landlords are incorporating the property business.  But there are tax issues with this move and any steps should be taken after taking proper advice.


Should I continue being a landlord?

Well, the straight answer to this question is “It depends”.

Why did you become a landlord in the first place?  Was it to:

  • Boost your retirement income?
  • Boost your current income?
  • Leave assets to the next generation.
  • Help your children.
  • Benefit from appreciation of the value of the property?

A lot of what is going on now will not impact the above objectives in the long run. However, there will be changes in the short-term cash-flow position and legislative adjustments.

Before deciding on whether to continue being a landlord, consider if your objective is still being met. It may be helpful to consult with a trusted advisor, such as an accountant, to review the figures before making a final decision.

We will be happy to chat with you. Please email your normal manager.  If you are not yet working with us look at how we support landlords


Is it worthwhile to become a new landlord?

In previous years, low-interest rates meant that borrowing was cheap and your return on investment was quite good.

Although tenant demand remains high, the current yield depends on which part of the UK you are investing in.  Many areas in the north are fairing much better than the South East.  Have a look at this article from Zoopla

On the other hand, currently, you can get an average return of 5% on your savings.  Have a look at the money supermarket comparison.  This is without any risk, hassle and maybe even tax (if saved in an ISA).

So, at the moment it is only worthwhile being a landlord if you are in it for the long haul.  Becoming a landlord is not a get-rich-quick scheme.  Remember whilst some areas in the North East and North West may offer tempting returns, it is an unpredictable market.

According to the British Landlord Association, high rates of voids, rent arrears, and property damage can offset the good yields that look promising on paper.

Do your research before you buy your first property.  It’s always worthwhile to spend some time in the local area and talking to agents.

Seek advice from an accountant on whether or not you should buy  your property in a company

You need to calculate the income you need after accounting for all expenses. Set aside funds for unforeseen expenses and taxes.  Plus, you need to be mindful of void periods and how you will finance that gap.

It is important to carefully weigh your options and seek advice from professionals before making any decisions, whether it involves becoming a landlord or leaving the market altogether. Exiting the market can result in certain challenges, such as capital gains tax.

We are here to help.  Get in touch.  Email your normal manager or look at how we work