Buy to let: What’s changed in a decade?

Enness has completed a review of the buy to let market over the last decade. The review found that, in order to secure appropriate lending, the amount of deposit, stamp duty (SDLT) and rental income required has more than doubled in 10 years.

When taking a £1.2million property as an example, in 2007 an investor would have been able to take out a mortgage on 85% of the property’s value (£1.02million), compared to 65% (£780,000) in 2017. SDLT in 2007 would have been £40,000, compared to £99,750 in 2017 thanks to increased rates of SDLT in general and the additional charge for second properties.

In terms of rental calculation, a 3.149% yield (£3,187.50 per month) would have been necessary in 2007, but in 2017, this jumps to 4.88% (£4,875 per month).

£1.2million property
2007 2017
Deposit 15% / £180,000 35% / £420,000
SDLT 4% / £40,000 8.3% / £99,750
Rental income required 3.19% yield / £3,187.50m per month 4.88% yield / £4,875 per month

When looking at the average detached house in London, which has increased in value by around 98% in a decade, the following calculations further highlight the monumental increases in the last 10 years.

Average detached house in London
Worth £905,446 in 2007 Worth £1,790,649 in 2017
Deposit 15% / £135,817 35% / £626,727
SDLT 4% / £36,218 10.2% / £182,347
Rental income required 3.19% yield / £2,886 per month 4.88% yield / £8,729 per month

These figures evidence the challenges faced by landlords today; upfront costs of investing in a buy to let are through the roof, thanks to SDLT and a larger deposit being required, while an increase in the necessary rental yield makes securing a mortgage less affordable.

Despite this, we still see a continued interest in the buy to let market, with expats in particular remaining positive about UK property as a long term investment. We’re seeing clients who are willing to fix their mortgage for five years – longer than perhaps they would have before – taking a longer term view in terms of capital appreciation, rather than rental yields.

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