- 36% increase in landlords expecting rents to rise over the next six months compared to the same period last year
- 44% of landlords rate the prospects for their own letting portfolio as ‘good’ or ‘very good’ for the next three months
- Landlords more optimistic about rent increases compared to same period last year
- Assuming Office for Budget Responsibility national forecasts, East Midlands and Yorkshire top indicative returns – 11.25% pa for basic rate tax payer over five years
- Using the same national forecasts, London is the worst performing region – 5.75% pa for basic rate tax payer over five years
Buy-to-let investment in the long-term still has strong potential to beat savings rates by a significant margin over the coming years, despite tax increases, according to Allsop’s latest issue of The Rent Check, a barometer for the rental market in England and Wales published with BDRC Continental.
The survey reveals that 37% of landlords anticipate growing rents over the next six months, a year-on-year increase of 36%, and 44% of landlords had ‘good’ or ‘very good’ expectations for their own letting portfolio over the next three months.
However, the percentage of landlords intending to purchase one or more property in the next 12 months fell to 16%, the lowest level in just over four years, since the Rent Check begun in the autumn of 2012. Around four fifths (83%) of landlords reported that obtaining buy-to-let finance had become more difficult in the last six months.
For each region, The Rent Check has calculated the estimated annual return for three, five and ten year periods after tax for basic rate 20% tax payers and 40% tax payers, and has analysed rental yields, house price growth and running, finance and legal costs. For this analysis, variables applied included borrowing based on a 145% rent cover at an assumption of 5.25% interest rate, a five-year fixed term mortgage at an interest rate of 3.25% and 4.5% for the remainder of the term and running costs of 25% of income.
Using Office for Budget Responsibility national forecasts for wage growth and house prices, the top performing regions for indicative returns are the East Midlands and Yorkshire, with returns of 11.25% per annum over a five-year period for a 20% tax payer, and a still significant, 9% per annum for a 40% tax payer. Using the same national analysis, London was the worst performing region at a still respectable 5.75% per annum for 20% tax payer and 4.75% per annum for a 40% tax payer over the same period. Of the landlords polled, 45% were higher rate income tax payers.
Paul Winstanley, partner at Allsop, said: “For those with equity to invest, buy-to-let returns still have the potential to outstrip savings accounts over the long term. Whilst tax changes and toughening lending criteria is challenging landlords, most are in it for the long term and we still only expect a small minority to exit as the tax changes feed through.
“With no quick solutions to the housing crisis, long-term private landlords providing decent accommodation will continue to play an important role in housing our population. As long as there are no new tax rises targeting landlords, buy-to-let will remain a stable and attractive sector for long-term investors.”
Notes to editor
Allsop is an independent property consultancy with a market-leading reputation for high quality service, integrity and innovation. We are also well known as the UK’s largest and most successful auction house. Our success is built on over 100 years’ experience in commercial and residential property consultancy and sales.
For details visit www.allsop.co.uk
The Rent Check
The Rent Check is based on a survey of 1,557 landlords across England and Wales.
Future rates of return calculations are based on the Office for Budget Responsibility’s November 2016 forecasts for national wage and house price growth. Other assumptions for variables include:
- Borrowing based on a 145% rent cover at an assumption of 5.25% interest rate
- Running costs of 25% of income to cover management, maintenance, insurance, voids etc.
- A five-year fixed term mortgage at 3.25% interest and 4.5% for the remainder of the term
- Legal fees for acquisition at £1,450
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