Property investment specialist BondMason (www.bondmason.com) has created a new index to help Britain’s private landlords and investors benchmark the performance of their residential property investments.
It makes compelling reading for private landlords; despite seeing strong returns for the last few decades, most private landlords would have done better if they had sold their properties three years ago, as tax changes started to bite, and invested in listed corporate landlords instead.
The key figures from BondMason’s research are:
- The average private landlord has gained a post-tax return of +16.9% over the last three years (from 1 April 2016 to 1 April 2019 – source BondMason analysis; for higher-rate tax payers, assuming 65% loan to value mortgage, 3% p.a. interest; and a 4.5% rental yield)
- Meanwhile, BondMason’s BRIX shows investors in corporate residential landlords have seen a return of +37.7% (BondMason BRIX is the Residential Property Investment Index, comprising Britain’s biggest residential property investment listed companies and funds – also from 1 April 2016 to 1 April 2019)
- House prices have grown by total of +6.0% over the past three years (from March 2016 to 2019 – source Nationwide house price index).
BondMason will be updating this new index monthly to track the financial performance of listed corporate landlords in the UK, enabling private landlords to compare the performance of their own buy-to-let portfolios. Latest versions are available here: www.bondmason.com/bondmason-brix
Stephen Findlay, the CEO of BondMason, says: “Britain has around 2.5 million private landlords. Their number has grown for decades, but recent tax changes and increasing regulations have left many wondering if the financial gain is worth the cost and hassle to maintain the property, do the administration and deal with tenants.
“Our calculations show over the past few years the likely post-tax gain for the typical private landlord has declined substantially, concluding that for most private landlords the hassle is no longer worth it. With hindsight, many would have been better off selling up a few years ago, ending the time-consuming activity of dealing with tenants, and instead investing their money with listed corporate landlords.
“Looking ahead, our research also predicts worse is yet to come. Many private landlords may start to struggle to balance the annual costs of owning a rental property, with the post-tax rental income received, particularly in areas of lower rental yield, as the allowable mortgage tax deductions continue to decline. This month the Mortgage Interest Relief continues to phase in, and by next year landlords will be restricted to claiming a basic rate of income tax (20%) on their mortgage interest costs, while having to pay their full tax rate on the rental income.
“In some cases, landlords will have seen their tax bills double or even treble over the last few years. I would not be surprised to see many private landlords making no income or even a loss next year as this change takes effect. This may lead to more and more landlords thinking again about their buy to let investment portfolios.”
BondMason believes nonetheless there is still money that can be generated from investing in Britain’s residential property market. The declining post-tax returns generated by private landlords contrasts with the strong growth and surge in the value of the growing number of corporate residential landlords; some of which are listed on the stock market.
This is because they are able to benefit from lower tax charges than individual landlords, and a full tax deduction of debt interest costs, as well as a £4.5bn injection from the government to support the Build-to-Rent sector.
Stephen Findlay adds: “Historically the UK rental market has been dominated by private landlords, but that is now changing following the increased tax burden and new regulations which make it harder to generate a positive income each year.
“These companies are filling the gap left by smaller private landlords exiting the market, satisfying the strong demand for rental properties, particularly from first-time buyers continuing to be priced out of the housing market in many areas.
“Our expectation is that we may soon see the peak in terms of the proportion of houses owned by individual private landlords, and that proportion will start to decline, unless tax legislation is changed or reversed.
“But the good news is that the growth in number of listed corporate landlords means a greater number of people can get exposure to good investment returns from the residential property market by investing in these companies, with the added benefit of being able to do so within a tax efficient wrapper such as an ISA or SIPP.”
About BondMason BRIX (BondMason Residential Property Investment Index)
BondMason BRIX is a market-capitalisation weighted index of listed companies and funds that own UK residential property for letting. From a review of over 300 listed companies and funds, those that have been selected own a majority of UK residential property, for letting and not for resale. They must have a minimum market capitalisation of £50M, be listed in the UK and at least 75% of their balance sheet must consist of rental properties.
About BondMason www.bondmason.com
BondMason enables investors to access returns from property-related opportunities.
BondMason is run by an experienced team of investment professionals, enabling investors to target attractive risk-adjusted returns arising from a diversified portfolio of loan investments secured against UK property, delivered by a conservative and rigorous investment approach.
BondMason’s main investment service – BondMason Core - enables investors to achieve attractive risk-adjusted returns from a diversified portfolio of loan investments secured against UK property. Clients have achieved an average net pre-tax return of 6% p.a. from this property-backed lending service, with positive returns in every month since October 2015.
Tim Prizeman / Kewalin Evans, Kelso Consulting (PR advisors to BondMason)
KevE@KelsoPR.com 020 7242 2286
Important regulatory information
This article is intended for discussion purposes. Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. Nothing in this article shall be construed as advice. Please contact your Financial Adviser for guidance. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, no representation is made as to their accuracy, completeness or correctness. Any opinion expressed, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of BondMason at the time of preparation. They are subject to change. Past Performance is not a guide to future performance. Residential property values are affected by factors such as interest rates, economic growth, fluctuations in property yields and tenant default.