Is Buy To Let Still Worth It? đ đˇ đ
A very valid question to be asking in light of the stamp duty hike on additional properties following Labour's 2024 budget
â How Did We Get Here?
Here's the chronology of events that have made more & more investors ask this questionÂ
2016 - 3% stamp duty surcharge on second homesÂ
2017 - Section 24 - You can no longer use mortgage interest as an allowable expense to reduce taxable rental income
2020 - Restriction of CGT payment window to 30 days after property saleÂ
2023 - Renter's Reform BillÂ
2024 - 5% stamp duty surcharge on second homes
And of course, we can't forget rates, those lovely interest ratesÂ
That's a lot of change to the BTL market in a short space of time, so let's look at how a buy to let today plays out today in light of the new stamp duty rates
â The Numbers
Purchase Price: ÂŁ400,000Â
Deposit: ÂŁ100,000
Stamp Duty: ÂŁ27,500
Survey/Legal/Loan Set Up Fees: ÂŁ3,000
Total Investment Required: ÂŁ130,500
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Annual Rent: ÂŁ22,200 (1850 pm)
Annual Costs: ÂŁ19,920 (this includes the mortgage costs at a 5% rate, repairs, insurance & agent fees)Â
Annual Profit: ÂŁ2280Â
ROI: 1.7% (Annual Profit/Cash Invested) - also known as ROCE
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â Number AnalysisÂ
You can clearly see the increased stamp duty, higher rates, section 24 amongst other things is making BTL a questionable investment
The numbers show that a vanilla BTL certainly isn't a no-brainer; there are a number of assets that can give you a stronger annual ROI than 1.7%
So is BTL still worth it? As always, the answer is always "it depends"...and it depends on the context, below are some contexts to consider
â Context Is Everything
Location: The UK property market isn't monolithic and monthly cashflows can be higher in other cities (especially to the north) in turn making your ROI significantly higher
Wealth Preservation: You might not care about monthly cashflows and instead want a safe asset to preserve/grow your money over a long time horizon, in which case a low annual ROI can still make sense to you
Creativity: HMOs, Serviced Accommodation, BRRR - These are all strategies that can boost ROI, turning a vanilla buy to let into a very different tasting flavour buy to letÂ
Time Horizon: If you have a long time horizon, then inflation can be a great ally to you. Over time inflation not only increases the price of your asset, but it erodes the value of your debt.
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Before ruling out a buy to let, consider first what your long term goal is, the strategy you're using, then work backwards from that, you might find a buy to let still very much makes sense to you.
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