The latest monthly analysis from property investment specialist BondMason (www.bondmason.com) of investment returns in the UK’s private residential rental sector – the BondMason Private Landlord index - shows that the typical buy-to-let investor will be lucky to generate annual returns above 2.5% for the next couple of years.
In fact many private landlords could end up making a loss in the next two years on their properties, once costs, tax and their mortgage is taken into account, with a typical buy-to-let landlord likely to make only 2.5% return each year on their investment, and that assumes the UK house prices bounce back following a poor 2018.
By contrast, good returns of 10% p.a.+ continue to be generated by listed corporate residential landlords, whose performances are tracked monthly in the BondMason’s BRIX index (includes listed companies investing in British residential property).
The key figures from BondMason’s latest residential landlord investment research are:
- BondMason BRIX (tracking returns of shares in corporate residential landlords): up 2.5% in April (compared to March), and 10.7% over the past year (1 May 2018 to 30 April 2019).
- BondMason Private Landlord index: this year a typical buy-to-let landlord will make almost no money from the rent received after expenses and tax are deducted, and many may make a loss. Assuming the property market is slightly more healthy than 2018, the capital gain from house price increases will still only give an overall return for a typical landlord of around 2.5%.
- Part of private landlord’s woes come from the effective tax rate facing them, which has ratchetted up from 8% of their rental income at the start of 2015 to 47% today. It will go up further to an effective rate as high as 56% next year, when counting the non-deductibility of mortgage interest.
- Assuming slightly higher, but still subdued house price growth this year and next (Nationwide’s house price index is up 1.0% in April and 2.8% over last 12 months), the typical buy-to-let landlord will be lucky to generate a return of more than 2.5% this year or next from their investment and all the work involved.
Stephen Findlay, the CEO of BondMason, says: “Britain has around 2.5 million private landlords, but we can see this to be a high water mark as the high tax rates that have now kicked in, mean that many landlords will struggle to cover the cost of their mortgage and other expenses, and may only make money by selling their property.
“By contrast to the decline in fortunes of the direct buy-to-let market, there are interesting opportunities for private investors who want exposure to residential property investments through corporate landlords.
“Corporate activity in the private rental sector continues to grow, with the burgeoning build-to-rent market gaining momentum. A number of these companies are now listed on the LSE and AIM stock markets, and provide investors with the investment opportunity to access returns from the underlying buy-to-let property market, without having to buy a property directly.
“However, private investors need to do their research before deciding to invest if they are looking to get exposure to the residential rental property market. Many listed property companies and funds are weighted towards the commercial property sector and those categorised in the residential sector include housebuilders, which exhibit different characteristics to the corporate landlords.
“So investors have to choose carefully to identify the relatively small but growing number active in the residential rental area.”
BondMason will be updating its BRIX index (for corporate listed landlords) and Private Landlord index (for private landlords) monthly to track the financial performance of residential property investors in the UK, enabling private landlords to consider the performance of their own buy-to-let portfolios.
Latest versions are available here:
- BondMason BRIX: www.bondmason.com/bondmason-brix
- BondMason Private Landlord index: www.bondmason.com/bondmason-private-landlord-index
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 70% of their balance sheet must consist of rental properties.
About BondMason Private Landlord Index
BondMason Private Landlord index estimates the returns generated by an average landlord in the UK by analysing publicly available data and trends in the UK buy-to-let markets.
About BondMason www.bondmason.com
BondMason is a property investment specialist, providing insights and analysis from the UK property market, and is run by an experienced team of investment professionals since 2014.
BondMason is one of only a handful of providers to receive a 5-star rating from Defaqto (the leading independent assessor of financial providers).
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.