An index has been created to help buy-to-let landlords and investors track the performance of their residential property investments.
BondMason’s tracker will be updated monthly but is already offering an insight into the ups and downs of the private rental market.
Indeed, it has identified most private landlords would have done better if they had sold their properties three years ago, when the tax changes began to take hold, and invested in listed corporate bonds instead.
It found the average private landlord had gained a post-tax return of 16.9% over the last three years – April 2016 to April 2019. Yet the BondMason BRIX also shows corporate residential landlords had seen an even greater return of 37.7% in that time. House prices over a similar period have gone up by 6%, said BondMason.
Stephen Findlay, CEO of BondMason, said many of Britain’s 2.5 million private landlords were likely to have been hit by recent tax changes and increasing regulation leaving many wondering if the financial gain was worth the cost and hassle.
“Our calculations show over the past few years the likely post-tax gain for the typical private landlord has declined substantially, concluding that for most private landlords the hassle is no longer worth it,” he said.
“With hindsight, many would have been better off selling up a few years ago, ending the time-consuming activity of dealing with tenants, and instead investing their money with listed corporate landlords.”
What’s the outlook?
BondMason predicts, going forward, worse is yet to come. It thinks a combination of the continued phasing in of Mortgage Interest Relief, which restricts landlords to claiming the basic rate of income tax on mortgage interest costs, along with struggles to balance the annual costs of owning a rental property will have an impact.
Findlay said: “I would not be surprised to see many private landlords making no income or even a loss next year as this change takes effect. This may lead to more and more landlords thinking again about their buy-to-let investment portfolios.”
However, BondMason thinks there is still money to be generated from investing in Britain’s residential property market. Findlay explained: “The good news is that the growth in number of listed corporate landlords means a greater number of people can get exposure to good investment returns from the residential property market by investing in these companies, with the added benefit of being able to do so within a tax efficient wrapper such as an ISA or SIPP.”
