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By Emma Cox

MD, Real Estate at Shawbrook


There is a future in buy-to-let

High interest rates, slow price growth and more stringent tax rules have eroded Buy-to-Let’s (BTL) charm for a number of landlords, but this doesn’t mean that the Buy-to-Let market is no longer popular. Far from it.

Recent years have seen a slow trend of a greater professionalisation of the market, with portfolio landlords (those with at least four or more properties) gradually increasing their share over those ‘accidental’ or ‘dinner party’ landlords.

What started this trend? 

This predominantly began with changes to regulation and taxation for landlords a few years ago. For example, since April 2020 landlords have no longer been able to recognise any of their mortgage expenses from their rental income in order to reduce their tax bill.  Now landlords receive a tax-credit, based on 20% of their mortgage interest payments. This is particularly a concern for those landlords who are or have been pushed into the higher or additional rate tax bracket. 

And this isn’t the only change in taxation, in 2016 the government put in place a 3% surcharge for those buying additional residential properties that will not be their main residence. 

And what’s changed in 2023?

Landlords came under further pressure last year, with a combination of additional tax changes, high interest rates and incoming regulations dissuading many from entering the market and prompting more to sell-up. 

Just recently the government has halved the capital gains tax allowance from £12,300 to £6,000. This halved again last month (April 2024) to £3,000, meaning any landlord who is planning to sell their property should perhaps consider doing so now, lest they face a much higher tax bill. This is particularly pertinent if they or their family have had the property for several years and seen substantial price growth. For those ‘accidental landlords’ this will be a big consideration, particularly if they have inherited the property and already been subjected to a substantial inheritance tax bill. 

For those that have a mortgage, rising interest rates will mean their day-to-day costs will have risen or will be likely to soon rise upon remortgaging. Since February 2022, the Bank of England base rate has risen from 0.5 to 5.25 as of April 2024. This, on top of already increasing bills and prices of everyday items, means landlords are facing significantly higher outgoings, even with increased rents. 

In addition, what was expected as new regulatory proposals from the government to improve the private rental sector’s energy efficiency has hit landlord’s pockets. While the regulations have now been scrapped, with the necessity to reach net zero and increasing demand from tenants for energy efficient properties, landlords still need support to make the changes.  

Opportunities for professional landlords 

Given the challenging conditions, many property landlords are rethinking their future within the BTL market; however, this is creating opportunities for professional landlords. Many plan to add to their portfolios and a significant proportion of landlords are diversifying their strategies to include a wider range of property types.

Properties such as houses in multiple occupation (HMOs) have increased in popularity. In both 2022 and 2023, HMOs made up just over a quarter (27%) of all Shawbrook’s Buy-to-Let

business, and are growing in popularity due to offering higher yields than one household homes. As landlords place further emphasis on diversifying their portfolios, this number has already risen to more than a third (34%) in 2024. There has also been a rise in

HMO business from non-portfolio landlords, from 17% to 21% over the same period, which is a trend we expect to see increase significantly throughout the remainder of 2024.

Fluctuating house prices, which still remain lower than last year according to the ONS, could present further opportunities for professional investors to capitalise now. And with the supply of rental properties struggling to keep up demand, landlords who offer quality properties will benefit.  

For their buying plans, many professional landlords are now also taking the extra step of buying through a limited company, with the number doing so doubling since 2017 according to data from Hamptons. The real estate agency now estimates that 40% of all new Buy-to-Let purchases are made via a company structure. This points to the growing professionalisation of the market, and the need for those landlords to ensure they are operating as tax efficiently and cost-effectively as possible. 

Professional landlords are also making moves to improve the energy efficiency of their properties, in particular, to support their tenants during the cost-of-living crisis. For brokers advising their clients on these improvements, being aware of possible incentives or specialist products available in the market will be key. Whether it’s a discount upon reaching an EPC rating of C or above, or a loan to undertake development works, specialist lenders can support these ambitions. 

The market has been through a series of challenges, and many remain today, but professional landlords are not only surpassing these obstacles but also using them to their advantage, expanding their portfolios while they can, and setting themselves up for future growth. 


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