Does it still pay to be a landlord in 2024?

If you’re looking to build wealth and receive a passive income, you may have considered entering the buy-to-let market. Or, you could be one step ahead of this, already owning one or several domestic rental properties.

Indeed, owning a portfolio of buy-to-let properties may be an attractive prospect that could allow you to:

• Keep earning money throughout your retirement
• Save and invest the income you receive in line with your goals
• Leave a sizeable inheritance, including property, to the next generation
• Maintain a comfortable standard of living in later life, such as covering care fees if necessary.

While being a landlord has long been considered a great way to make an income on top of earnings generated from work, the buy-to-let landscape has changed since the pandemic.

In fact, many now argue that rental properties aren’t a sustainable or lucrative investment at all – while others remain optimistic about this source of income. The media can be polarising on this topic, making it all the more difficult for landlords to make an informed choice about their properties.

In this article, you will read about:

• The key changes to the buy-to-let environment in recent years
• The opportunities that being a landlord may still present in 2024
• How a Kellands financial planner can help you pursue your goals.

Keep reading to find out more.

4 ways the buy-to-let landscape has become more challenging for landlords in recent years

1. House prices have risen

In the last five years, house prices in the UK have fluctuated significantly, resulting in an overall increase despite experiencing a dip in 2023.

The government’s House Price Index (HPI) says that in June 2019, the average price of a UK home was £230,292. In June 2024, the average UK home cost £288,000 – an uplift of nearly £60,000 from five years ago.

So, for those looking to purchase one or several buy-to-let properties, the cost of doing so may be higher than previously. This could potentially prompt some landlords to take on larger mortgages with longer terms in 2024 than they would have in 2019.

As a landlord, rising house prices present you with both a challenge and an opportunity. While you may be able to sell existing properties in your portfolio for a higher sum than in 2019, expanding your portfolio could mean taking on a larger amount of debt too.

2. Mortgage rates have gone up

The Bank of England (BoE) increased the base rate of interest 14 times between December 2021 and August 2023, bringing the rate from just 0.1% to 5.25%. The base rate remained at 5.25% until July 2024, at which point the BoE decreased it to 5% in light of falling inflation.

As a result of the BoE’s interest rate hikes, along with former chancellor Kwasi Kwarteng’s controversial mini-Budget announcements in October 2022, lenders increased mortgage rates alongside the base rate. Most rates peaked at more than 6% in the autumn of 2022 before falling again over the nearly two years that followed.

As an example of how mortgage rates look for buy-to-let landlords in August 2024, Moneyfacts reports that a five-year buy-to-let mortgage rate may sit at around 3.8%. Of course, the rate may vary depending on whether the buyer is a first-time landlord or operating under a limited company, among other factors.

Whereas, Which? reports that in April 2019, lenders were offering fixed rates over five years at around 2.36% for buy-to-let landlords. This meant that taking on debt was less expensive, and as you read above, landlords may have accrued less debt due to lower house prices. In combination, it’s fair to say that being a landlord was likely less expensive five years ago.

3. Tenant arrears are rising

An August 2024 report from Landlord Today claims that the average rental arrears reached £2,092 in the second quarter of 2024, up 31% from Q2 2023, in which arrears stood at an average of £1,594.

This has affected landlords’ own mortgage arrears, with the same report, using data from UK Finance, saying there were 13,570 cases of buy-to-let mortgage arrears in Q2 2024.

That said, as USwitch reports, this is the second spike in arrears in the last five years. The first came in 2020, in which 42% of landlords reported they had tenants in rental arrears (largely due to the effects of the pandemic on employment).

As you can imagine, rising tenant arrears pose a risk to landlords’ financial stability. Unless managed by a letting company that guarantees payment, tenants being unable to pay may leave you in a “void period” in which you are still required to make mortgage repayments, but are not receiving rental income. If you own several buy-to-let properties with tenants in arrears, this debt can quickly stack up.

Of course, the rise in rental arrears in 2024 is likely to be a result of landlords raising rental prices in light of higher house prices, higher-for-longer mortgage rates, and the overall cost of living crisis. This creates a chain of financial strain that often ends with the tenants, who can be evicted if arrears become too high.

Indeed, as you can see from the below graph, UK landlords have raised rents significantly in the last eight years.

Source: USwitch

When polled about the reasons for raising rent prices, or planning to do so in the next six months:

• 74% of landlords said this was to help keep up with the increased costs of running a property
• 57% also said they were raising rents to keep up with their buy-to-let mortgage repayments
• 59% wanted to align their prices with the local market rents.

As such, the increase in tenant arrears reflects the fact that for many landlords, raising rents to match rising costs may not be the quick-fix solution they had hoped for.

4. Tax rules are changing

In 2016, former chancellor Sir George Osbourne announced a reduction to the amount of Income Tax relief landlords could claim on residential property costs.

In its announcement, the government stated: “Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.”

These changes were “phased in” between 2017 and 2020.

On top of this, the Capital Gains Tax (CGT) Annual Exempt Amount, which is the amount in profit you can earn from selling second homes (including buy-to-let properties) without paying tax, fell from £12,300 to just £3,000 between 2022 and 2024.

So, while rising house prices may increase your profit margins if you sell a buy-to-let property, the new, lower CGT Annual Exempt Amount might mean you pay more tax on a sale.

What’s more, the new Labour government are set to announce tax changes in its Budget statement, set to be delivered in October 2024, which could affect landlords.

With all this in mind, you could feel pessimistic about your options as a buy-to-let landlord.

However, there are some upsides to buy-to-let ownership in today’s world – keep reading to find out how they might benefit you.

4 ways being a landlord could still be profitable in 2024

1. You could earn more from a sale

If you have held a buy-to-let property for a long time, and decide to sell it this year, you may be pleasantly surprised by how its value has increased over time.

While past performance is not a reliable indicator of future performance, house prices tend to rise over the long term. So, owning properties for a decade or more with the eventual goal of selling them might still be a worthwhile investment for patient landlords with a secure financial plan.

2. Demand for rental properties is rising

If you own a buy-to-let portfolio already, you may be wise to the fact that due to rising house prices, those who might normally be first-time buyers are renting for longer. As a result, demand for rental properties continues to go up.

Data published by USwitch in 2024 reveals that in Q3 2023, 91% of landlords reported an increase in demand for their buy-to-let property or properties. This means that, although costs may be rising for you as a landlord, it’s likely that you will have no trouble finding the right tenant for your property.

This demand may also allow you to be more selective about the tenants you take on, ensuring that your values regarding home care and standards of living are aligned, and increasing your chance of a mutually beneficial long-term relationship with loyal tenants.

3. If mortgage rates continue to fall, profit margins may increase

Inflation has dropped from its 40-year high of 11.1% in 2022, to just 2.2% as of July 2024, the Office for National Statistics (ONS) reports.

The BoE has a target inflation rate of 2%. So, if inflation remains around this mark, the BoE may continue to reduce the base rate, bringing it lower than 5%. This may prompt mortgage lenders to lower their own rates, potentially allowing new landlords, or those remortgaging, to benefit from a lower rate for their property.

Following this, you could begin to see wider profit margins from your rental income. Over the long term, this could allow you to save and invest your passive income more successfully and work towards your goals more easily.

4. Renting out mortgage-free properties is very likely to earn you an income

While most landlords are likely to have a mortgage on some or all of their properties, you could be looking to rent out a property you own outright.

This presents unique advantages for you as a landlord: without any debt attached to the property, you can take a passive income without needing to worry about entering mortgage arrears if your tenant can’t pay.

A Kellands financial planner can review your property portfolio alongside your other wealth

While there are several challenges facing landlords in 2024, that does not mean it is simply a loss-making endeavour.

Perhaps most importantly, it may help to have a diverse range of assets providing an income, not just property, to ensure you aren’t relying on one type of investment to fund your goals. Plus, it may be worth considering your property portfolio, much like your other investments, as a long-term journey that is unlikely to help you earn reliable returns in the short term.

Ultimately, the property landscape will continue to shift and change, as will your personal circumstances – what matters is having the right support system behind you.

Your Kellands financial planner will:

• Review your unique wealth circumstances, including your buy-to-let mortgages, rental income, and other associated fees
• Listen carefully to your long-term goals, and assess whether your existing investments are in line to meet them
• Advise on the profitability of your existing property portfolio, along with other assets you hold, and help you form a plan for the future
• Support you long-term as legislation, tax rules, and the property market continues to shift and change.

To find out more about building your property portfolio in line with your long-term goals, reach out to us today.

Email hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. The Financial Conduct Authority does not regulate buy-to-let (pure) and commercial mortgages.

< back to News & Views