Landlords who arrived in the buy-to-let market five years ago are unlikely to have made any money, and could potentially have made losses.
Those with buy-to-let mortgages are counting their losses on investments, while cash buyers aren’t likely to make profits.
These warnings have come from founder of The Model Works, finance expert Brian Hall, who specialises in reports on the housing market.
Hall has also criticised statistics from the Association of Residential Letting Agents (ARLA), which indicates stable buy-to-let profits, describing the findings as “incomplete, inaccurate and biased.”
Hall uses house price indexes and mortgage data to aid his research, as well as considering costs such as management costs, fees, arrears and Stamp Duty. His data is also calculated on the returns should the property be sold now, relating to the past five years, whereas ARLA estimates returns over the next five years.
Hall’s figures reveal that anyone who bought a generic buy-to-let property five years ago would have made a net yield loss of £9,811. After ten years, the net yield develops to a profit of £10,239, further ascending to over £29,000 in 15 years.
On his findings, Hall says: “If you read the numbers, you can see geared investors are making a loss and cash buyers are making no profit at all. It is crucial someone making such an important decision is properly informed.”1
Supporting their own studies, ARLA says: “The ARLA Review and Index is based on surveys conducted among ARLA members and investor landlords. It is independently written and includes clear details on the methodology used.
“The index model used has provision for altering assumptions for different scenarios and is one of a number of reports across the property industry.”1
Another report, however, from BDRC Continental’s landlord panel, exposes that landlords in central London would incur costs of £8,071 per year in maintenance, insurance, fees, and other costs, discounting mortgage repayments. In outer London, these costs would be £7,870.
The verdict by the panel shows that just under a quarter (23%) of private landlords who let out property in central London, spent over £5,000 on maintenance alone in the last 12 months. The next highest cost came from insurance, with 14% of landlords spending £2,000 or more, and 12% spending the same amount on agent fees.
Within outer London, 24% of private landlords have spent over £5,000 on maintenance; agent fees have cost almost 11% £2,000 or more; and 5% spent the same on accountants. Expenditure on insurance here is lower, however spends on letting fees are higher.
Director of BDRC Continental, Mark Long, explains: “There are a lot of costs associated with being a private landlord, not least maintenance, insurance, and professional advice from accountants and solicitors.
“However, our survey tells us that the market for private rental across London is strong, and landlords feel positive about their prospects, so despite the costs, the market for letting property in the capital, in London, remains buoyant and profitable.”1