The buy-to-let (BTL) market is no longer the gravy train it used to be. Forget the ‘accidental’ landlords, those who just happened to own a spare property – they’re increasingly heading for the exit door. But while the casual investor is struggling to make ends meet, professional landlords are thriving and snapping up opportunities left and right. Here’s why:
The Challenges of Being a Landlord in 2024
Remember the good old days? When you could easily offset your mortgage interest on your tax bill and make a tidy profit from renting? Well, those days are long gone.
- Tax Changes: The taxman’s gotten tougher. Back in 2020, the government ditched the tax break that allowed landlords to deduct mortgage costs from their rental income. Now, they only get a 20% tax credit on their mortgage interest payments, making things a lot less appealing for those in higher tax brackets.
- Capital Gains Tax: The capital gains tax allowance got slashed to £3,000 this year, meaning you’ll pay more when you sell a property.
- Cost of Living Crisis: Landlords are facing a double whammy: rising costs and higher interest rates. It’s no wonder many are feeling the pinch.
New Opportunities for the Pros
While the average landlord is struggling, the professional landlords are capitalising on these tough times. They’re using the current climate to their advantage.
- Portfolio Growth: Many professional landlords have snapped up properties at lower prices due to the stalled house market, expanding their portfolios.
- Higher-Yielding Properties: They’re ditching traditional single-let properties and diving into houses in multiple occupation (HMOs). HMOs are hot property right now, offering higher rents and more frequent tenant turnover, making them more resistant to mortgage rate increases. No wonder Shawbrook, a major lender, is seeing more than a third (34%) of its buy-to-let business come from HMOs this year.
- Semi-Commercial Properties: Another growing trend is retail units with flats above, offering a mix of commercial and residential space. Landlords can tap into two income streams and enjoy higher yields. Shawbrook has seen a near doubling of applications for these types of properties this year.
The Importance of Energy Efficiency
Even with the government scrapping its planned EPC overhaul, energy efficiency is still a key factor for success. Professional landlords are investing in their properties to improve energy efficiency, keeping tenants happy and reducing their own costs.
The Company Structure Shift
The increasing number of BTL purchases through company structures is another sign of professionalisation. These landlords are taking a long-term view, using their businesses to weather the storm and thrive in a challenging market.
The Takeaway
The BTL market is shifting. It’s no longer a playground for casual investors. Professional landlords are taking charge, adapting to the changing landscape and building their businesses for the future. They’re embracing HMOs, semi-commercial properties, and energy efficiency.
If you’re thinking about getting into the BTL market, ask yourself: are you ready to play with the big boys?