Buy to let profitability rises despite higher costs and inflation

The profitability of buy to let properties in the UK has increased over the last year, according to new research.

Letting and estate agents Benham and Reeves has analysed the gross and net rental yields of the average BTL property across the country, taking into account the costs of maintaining and furnishing a rental home.

And it says that the average buy to let property costs £289,824 and rents for £1,276 per month.

This means that landlords can expect to earn £15,312 per year in rental income, or a gross rental yield of 5.3%.

That’s a 4.8% improvement in the last 12 months.

‘Gross yields have remained fairly favourable’

Marc von Grundherr, a director of Benham and Reeves, said: “While gross yields have remained fairly favourable, the reality of buy to let investing is that there are a whole host of additional costs that need to be considered and accounted for, all of which eat further into the profit margins of landlords.

“This is a small detail that the Government has largely neglected to consider when waging war against the sector and introducing numerous legislative changes designed to dent profitability.”

He added: “What’s more, the cost of goods remains considerably higher than they were just a year ago and so even furnishing a property to an acceptable standard can be an expensive endeavour.

“The silver lining is that while the average net yield may sit at just 3.4% currently, this has increased in strength over the last year and so the consistency of buy to let investing remains, albeit not to the same extent as we’ve previously seen.”

Net rental yield is lower once the annual running costs are deducted

However, the net rental yield is lower once the annual running costs are deducted and these costs include letting agent fees (£1,837), general maintenance (£2,898), gas safety certificate (£80), electrical safety report (£225) and landlord insurance (£427).

In total, these expenses amount to £5,468 per year for the average landlord, reducing their net income to £9,844 and their net yield to 3.4%. This is still higher than 3% a year ago.

The net yield does not include the cost of repaying a BTL mortgage, which is currently £1,201 on average.

Moreover, landlords also have to deal with inflation affecting the prices of furniture and appliances.

In the last year alone, the cost of electric cookers has risen by 12.3%, curtains by 8.8%, dishwashers by 6.7%, armchairs by 5.7%, washing machines by 5.2% and wardrobes by 4.8%.

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