Profits from buy-to-let 'almost impossible' for newcomers

Profits from buy-to-let 'almost impossible' for newcomers
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Britain's buy-to-let market has become so constricted in recent years it has become "almost impossible" for newcomers to make a profit on the rent.

This is the view of Adam Male, chief revenue officer for online lettings agent Mashroom, who said there was no doubt the BTL market is not as easy to enter as it was.

He said: "With the lack of tax advantages, such as being able to expensive mortgage interest and wear and tear allowance, and given the ever-increasing tightening of regulation for landlords to cut through, making a profit on the rent is almost impossible if you are a new entrant to the market without a large cash deposit." 

Advisers have seen a gradual erosion of 'accidental landlords', with more people seeking to have portfolios of properties in place as their investment of choice.

Male said: "If we compare the market now to 10 years ago, the answer is probably that it has become a place for more sophisticated investors. But B2L yields and underlying capital appreciation are still attractive enough to provide steady income and capital gains in most of UK."

The UK buy to let market has more than 8mn privately rented homes, although some pundits have predicted wholesale sell-offs as smaller landlords divest properties from their portfolios.

Following the Spring Statement in 2021, FTAdviser reported on a poll from FJP Investments, which found 68 per cent of landlord respondents believe buy-to-let has become "far less attractive". Some 44 per cent indicated they were looking to sell one or more properties in 2021. 

Earlier this year, research showed that B2L loan sizes jumped by 13 per cent in January 2022, meaning the average maximum loan available to prospective and existing landlords is now £421,053 - some £20,000 higher than at the end of December 2021.

According to Male, many of the factors driving the pre-2017 B2L boom are no longer applicable. He said: "The B2L market boom has largely been the case due to cheap borrowing costs, a growing tenant population and rising property values.

"It used to be a no-brainer as an investment, particularly during the mortgage interest tax relief being in place prior to 2017."

Following tax changes put in place by the then chancellor Philip Hammond, many small landlords were expected to leave the market, finding the changes too onerous for them (see box out, below). As Male comments, these changes seem "designed to curb accidental landlords".

He explained: "Instead, professional cash rich landlords with large numbers of properties can use company structures more easily and use economies of scale and are therefore unaffected by the changes in the past five years."

However, he said that for those with long-term aspirations, and were happy to break even on the rents for a good period of time, the UK property market would still be a "solid investment".