Is now the time to invest in buy-to-let?

The short answer to this question is always a yes – if you do your due diligence carefully and make sure it’s the right investment for you.

The reason is, is that there will always be people who can’t afford or don’t want to buy a property, but still need a roof over their head. The private rented sector provides a valuable resource. And in the current market, where demand from tenants is far exceeding the supply of available rental accommodation and the Government is still way behind on its social housebuilding targets, there has never been a greater need for private landlords to invest.

The great thing about buy-to-let is that, because of this consistently strong demand in many areas of the country, if you know letting will give you the income returns you need, it doesn’t matter when you invest – whether the property market is rising, falling or staying the same. Whatever is happening in the market, as long as you find the right property in the right area at a good price, you should be able to secure a good return. And because it is a medium to long-term investment, to date, although prices go up and down, overtime, capital values tend to rise, regardless of these periodical fluctuations.

So that’s the first thing to appreciate: your best returns will come from investing over a 15-plus year period, so make sure you’re happy to have your capital tied up for that long. The second important caveat is that you do some solid research on the local market to make sure you’re buying something that will always let well – and still be attractive to buyers in the future. That means working with local experts, such as ourselves.

It is also worth talking to a mortgage broker as rates have already started to fall in 2024.

Joshua Halsey at our sister company Mortgage Scout, says, “Already this year, we have seen some really significant rate reduction which show the buy-to-let market is fully open in 2024. There are still some good deals out there, especially if you have not reviewed your mortgage in a long time. In the first 10 days of January alone we have helped 3 clients save a combined £50,000 in interest payments by doing portfolio reviews. Mr D saved £900pm across 3 properties, Mr P saved 400pm across 2 properties and Miss F saved £500pm on one remortgage – all of these mortgages had been on the standard variable rate.”

Here are five critical things to consider if you’re thinking of investing this year:

1. Is property the right investment for you?

There are a variety of assets you can invest in and, while property can give you comparatively high returns, it’s also higher risk than some other options. It’s also more costly and takes longer to get into and out of than things like stocks and shares, so it’s essential to discuss your circumstances with a financial adviser or wealth manager, who can go through the benefits and potential downsides of property and help you work out whether it’s the right investment choice for you.

 2. Will buy-to-let give you the returns you want or need?

The average buy-to-let gross yield is currently around 5.5%, with some areas reaching 8% or more, according to Zoopla. That’s thanks to rents having risen faster than house prices in the last couple of years, with the long-term average closer to 4%. If you’re considering investing in HMOs, yields are generally higher, at 6-9%.

It’s useful to know that average yield figure so you can aim for your investment to beat it, but what’s really important is to know all the income and expenditure associated with an individual property so you can calculate net rental income returns and know the monthly profit figure. Make projections for the next 5-10 years and base your estimates on long-term averages, not current rates – e.g. mortgage interest rates of 5-7%. 

Critically, you need to be as sure as you can that you’ll be able to raise your rents and your property will increase in capital value each year at least in line with inflation (a long-term average of around 3% p/a), to make sure your investment doesn’t lose value.

3. Know and factor in your tax liabilities

Property tax can be particularly complicated, so it’s advisable to consult a specialist who can advise you on exactly what you’ll be liable for, and help you invest in the most tax-efficient way. Importantly, when putting together your budgets and cash flow predictions, remember to make allowances for income tax and capital gains tax.

4. How is the local market likely to change in the next 5-10 years?

New housebuilding, business investment, and transport and infrastructure changes can all affect property prices, rents and demand in an area. As a landlord investing over the long term, you need to be aware of any local plans that could impact your returns, so speak to local property professionals – agents, surveyors, landlord associations – and you can also check development plans with the council.

5. Can you find a good deal?

While rental returns and capital growth are the cornerstones of a good buy-to-let property, canny investors will always look for something where they can gain extra equity at the start. That means finding a motivated seller who’s willing and able to accept an offer at below the true market value - generally in return for a quick transaction – or buying a property that needs renovation or can be extended to boost its value by more than the work costs.

In 2024, as property prices continue to cool and other landlords who are ready to cash in their investment leave the market, there are likely to be some bargains around. It does often take a bit more time to find these deals and you need to be ready to move quickly on them, so it’s vital to get your finances in order and have a legal company instructed before you make any offers.

However, if you’re prepared to put in the extra effort and build relationships with local agents so you’re their first call when a good deal comes up, you could not only end up with an excellent buy-to-let property, but also benefit from ‘instant equity’.

If you would like to find out about your local market in more detail and find out about current property investment opportunities, just get in touch with your nearest branch and one of the team will be delighted to help.