You could be forgiven for thinking, from reading the money sections in the weekend broadsheets, that buy-to-let investment is dead.
And it’s fair to say, in recent years, we have seen a noticeable decline in the number of landlords purchasing homes.
According to research by Hamptons, landlords purchased just 10% of homes sold across Britain during the first half of this year—a record low since 2010 and a sharp decrease from the 16% share seen in 2015.
This decline in landlord activity is not uniform across the country. The most significant drop has occurred in London, where the share of homes bought by landlords has more than halved from 17% in 2015 to just 8% so far this year.
This reduction comes despite the fact rental prices in London have reached all-time highs, highlighting a paradox in the capital’s rental market.
Buy-to-let yields are strong
However, this apparent exodus of landlords does not mean the end of opportunities in the buy-to-let sector. On the contrary, while fewer landlords are entering the market, those who do or those who remain are finding that yields remain strong and, in some cases, have even improved.
The average gross yield for new investors purchasing buy-to-let properties in England and Wales this year stands at 7.3%, up from 7% in 2023 and a full percentage point higher than in 2015.
This increase in yields is largely due to robust rental growth combined with relatively stagnant property prices, creating a favourable environment for new and existing investors alike.
Demand for rental properties is high
Despite the reduced number of purchases, the demand for rental properties remains high. In 2021, five million households in England and Wales were in private rented accommodation, up from 3.9 million in 2011 and nearly double the figure in 2001.
This sustained demand ensures that rental income remains a reliable source of revenue for landlords, even as the overall number of participants in the market declines.
It’s clearly displayed when you look at average rents – the average rent outside London has hit a record high of £1,314 across Britain, excluding London. This means that average advertised rents outside London are around 7% higher than a year earlier, according to Rightmove’s analysis covering Q2 2024. In London, the average advertised rent is £2,661 per month, which is 4% higher than a year earlier.
Research and planning will pay off
Moreover, while some landlords have been selling more properties than they are buying—private landlords accounted for 16% of all sellers in 2022—the long-term trend of rising rental demand and stable yields presents a compelling case for those considering entering the market now.
The potential for strong returns is further evidenced by the record number of landlords who set up buy-to-let companies in 2023, though only a small proportion of overall buy-to-let mortgages are currently held by these corporate landlords.
It is also worth noting the impact of recent tax changes on landlord behaviour. The removal of mortgage interest tax relief, combined with the potential for further capital gains tax increases under the current government, has made the buy-to-let market more challenging.
However, for those who can navigate these changes, the rewards can be substantial, particularly as property values continue to stabilise and rents rise.
In conclusion, while the number of landlords in the UK market may be decreasing, the opportunities for those who
remain—or who are considering entering—remain abundant.
Strong yields, high rental demand and the potential for capital appreciation all point to a market that, despite the challenges, remains lucrative for savvy investors.
The current environment may be more complex and so may exclude some, but for those who do their research and plan accordingly, the buy-to-let sector continues to offer substantial returns.
Hiten Ganatra is managing director of Visionary Finance
