Is Now the Right Time to Invest in a Property or Grow a Portfolio?

Written on 2 February 2024 by Nicholas Mendes

Is Now the Right Time to Invest in a Property or Grow a Portfolio?

There’s been a lot in the news about the rental property market over the last few years. We’ve seen tax changes, property price increases and interest rates plummeting to all time lows - only to rapidly rise to heights we haven’t experienced for while. Then there’s the changes to eviction rules, landlord responsibilities, tenants’ needs and let’s not forget the strong possibility of a change in Government – which could mix things up even further! 

So, how do you know if now’s the right time to invest in a buy-to-let? First you need to know what’s happened and what’s happening now. Then you can assess your situation and what kind of investment would best suit your needs and lifestyle. 

How does that old saying go? Fail to prepare, prepare to fail. 

Buy-to-Let Tax Changes 

The UK rental market has seen significant changes in recent years. Since April 2017, tax relief on buy-to-let mortgage interest has been restricted to the basic rate of Income Tax. This can significantly reduce annual returns for higher rate taxpayers. Additionally, changes to Stamp Duty in 2016 now mean most landlords pay a 3% surcharge on property purchases. Other impacts include the Replacement of Domestic Items Relief replacing the Wear and Tear Allowance. 

These tax adjustments have eaten into landlord profits, so it’s important to factor them in when you’re planning for a new property investment. Nonetheless, the current market still offers a lot of opportunity to make a substantial profit with a buy-to-let portfolio. 

One of the most important things to do before investing in rental property for the first time or expanding your portfolio is speaking an accountant about the implications when purchasing or holding investments in your personal name, vs holding a buy-to-let property in a limited company. 

Other Considerations When Investing in Rental Property 

In addition to factoring in potential future policy and tax adjustments in coming years to regulate the private rental sector, you should consider changes to eviction rules, letting agent fees and minimum energy efficiency standards. 

Rental yields have improved as the UK property market has seen house price growth slow over the last 2 years while rents have continued to increase. Recent analysis for Zoopla highlighted the highest yielding cities in the UK are Sunderland, Dundee, and Glasgow, which offer a gross rental yield of between 7.7% and 8.4%, with the Northeast is the best for investors looking for strong yields, offering an average of 7.15% 

This means buy-to-let yields may still be attractive, especially as mortgage rates edge down. 

Mortgage interest rates have certainly stolen the limelight over the past 18 months, but we’re seeing them return to more familiar trends. They’re now more manageable, particularly when we factor in ICR calculations. 

Nonetheless, always bear in mind that interest rate changes could affect future financing costs. 

For existing landlords seeking to expand their portfolio, doing thorough research is key. Review rental income trends in your target locations over the past 24 months. Local factors can greatly impact yields. Consider transport links, new housing developments, student numbers and employment rates in your analysis. 

You Need to Decide What’s Right for You 

Perspective buy-to-let investors also have much to weigh up. Do you understand all the costs and responsibilities involved and do they fit in with your lifestyle? Will you use a letting agent or be more hands-on? Have you explored alternative investment options too? 

Make sure to take professional financial advice from an accountant and mortgage broker to fully understand what is the most cost-effective for your circumstances. 

Choosing the Right Property 

When assessing locations to invest in property and properties themselves, consider: 

  • Employment and infrastructure investment in the local area 
  • Current and projected housing demand against supply 
  • Rental yields and growth projections 
  • Ease of accessing the area for property management 
  • Type of tenant you want to attract and their expectations for the property and area – e.g. transport links and price of rent 

Wherever you invest, choose properties with care to maximise rental appeal and minimise voids. Presentation, configuration and facilities all matter to tenants. 

Now Is the Right Time to Invest – As Long as You Do Your Research 

Keeping up to date with the latest announcements can help you make informed decisions which is obviously essential. This will put your portfolio in the strongest position to weather ongoing regulatory impacts. Speak to a qualified whole of market broker like John Charcol but also an accountant who can provide helpful guidance tailored to your individual circumstances. 

While expanding your portfolio can boost long term returns, the level of borrowing should be affordable for your circumstances. 

At the end of the day, the buy-to-let market remains attractive for many investors, despite landlords facing a growing number of changes. Ultimately, the long term fundamentals still appear robust for UK rental demand. By making prudent decisions now, your portfolio could keep delivering stable income for many years to come. 

Learn more about your buy-to-let mortgage options and get in touch with our experts on 0330 433 2927

Category: Nicholas Mendes