September 26

Is renting houses profitable UK in 2023?


The rising popularity of serviced apartments attracts guests seeking hotel-like comforts while maintaining their privacy. To stand out among the competition and increase profitability, it’s crucial to enhance your marketing strategies for your multiple properties in town.

In recent years, changes in lettings legislation and increased taxes for landlords have led to reduced profits for some property investors in the UK.

Additionally, the current cost-of-living crisis and historically high mortgage rates are causing further concerns among landlords. The Renters (Reform) Bill, currently under consideration in Parliament, adds to these uncertainties, prompting some landlords to question the viability of maintaining rental properties.

UK rental properties can yield profits of up to 11% annually. For example, in Nottingham, you can purchase a rental property for £170,278, and it can generate a monthly rent of £1,598. These numbers vary depending on location, demand, and other factors.

Areas with high student populations tend to offer the highest profit margins for rental properties. On the other hand, in locations like London, where rents are high, the yields can be as low as 2.5%.

This article explores the key factors influencing rental property profits in the UK. It also delves into the comparison between short-term and long-term renting, with a particular focus on the potential returns of Airbnb investments. Discover strategies to maximize your rental property profits in the UK market.

This information is based on real data and trends in the UK property market as of September 2023.


Is renting houses still a worthwhile investment?


Advantages of buy-to-let:

  • Rental income potential, though it varies by location (e.g., Liverpool, Glasgow, and Leicester offer yields as high as 8%).
  • Possibility of capital growth as property values increase.
  • Option to obtain insurance for rental income loss, damage, and legal costs.


Disadvantages of buy-to-let:

  • Higher tax liability compared to previous years, impacting profits.
  • Risk of no income if the property remains unoccupied without proper insurance.
  • Potential capital reduction if property prices decline, especially with interest-only mortgages.
  • Expenses to consider, including stamp duty, insurance, and maintenance costs.
  • Landlord responsibilities can be substantial and require careful consideration.
  • Some individuals use buy-to-let for retirement income, withdrawing substantial sums from their pension funds.

This assessment helps investors weigh the pros and cons of buy-to-let investments based on their specific goals and financial circumstances, accounting for tax changes and market conditions.


How are prices and rents doing?

Currently, rental income in the UK is showing strength, with robust figures across most areas. Here are key insights based on data as of September 2023:

Rental Increase Trends: Average rents continue to rise in many regions, and year-on-year increases have reached record levels since 2006. Data from the Office for National Statistics (ONS) for the 12 months up to May this year reveals the following year-on-year increases:

  • England: +4.7% (excluding London)
  • Wales: +5%
  • Scotland: +5.4%
  • Northern Ireland: +10% (year to March 2023)

New Let Rents: According to Zoopla, rents for new lets increased by 10.4% in the year up to April (9.1% excluding London).

Affordability and Renters’ Views: Despite the rising rents, more than half of renters find it ‘somewhat’ or ‘very’ easy to pay their rent, with only 15% finding it ‘very difficult’. Affordability is generally considered when renters spend 30% of their earnings on rent, indicating that there is still room for rent increases. However, the extent of this varies by location.

Expectations: Rental growth is anticipated to slow down but not come to a halt, especially considering the persistent supply-demand imbalance in many parts of the UK.

These observations provide a data-driven perspective on the current state of rental income in the UK, highlighting both the growth and affordability aspects as of September 2023.


How do I get started with buy-to-let?

Becoming a landlord involves several practical steps, devoid of flowery language. Here’s a straightforward breakdown as of September 2023:


Step 1 – Financial Preparation:

  • Consult a financial adviser to determine your investment amount and expected returns.
  • Engage with a mortgage broker to secure a favorable deal or mortgage in principle for swift property offers.


Step 2 – Property Acquisition: 

  • The process of finding and acquiring a rental property may vary in duration but should be allocated several months.


Step 3 – Insurance Coverage: 

  • Alongside buildings insurance, consider safeguarding against unexpected expenses like tenant injuries, property damage, and rental income loss.


Step 4 – Tenant Selection: 

  • Choose between using a letting agency or private tenant selection, depending on your preferred level of involvement.
  • Even when renting to acquaintances, ensure a legally binding tenancy contract is in place to avoid potential disputes.


Step 5 – Ongoing Management:

  • Continuously review your mortgage terms as they expire and perform necessary property maintenance.
  • Optimize your buy-to-let income for tax efficiency with the assistance of an accountant.

This guide outlines the practical steps involved in becoming a landlord, emphasizing the importance of financial preparation, insurance, tenant selection, ongoing management, and tax considerations.


Top 5 Areas With the Best Rental ROI in the UK

These areas are: 


1. Yorkshire:

  • Yorkshire boasts two districts in the top 10.
  • Average annual return: 9.9%.
  • Average property asking price: £280,000.


2. Cardiff:

  • Cardiff has two districts in the top 25.
  • Average annual return: 8.6%.
  • Average property asking price: £173,000.


3. Southampton:

  • Southampton reports an average annual ROI of 8.6%.
  • Average property asking price: £214,000.


4. Newcastle Upon Tyne:

  • Newcastle features three postcode districts in the top 25.
  • Average annual return: 8.5%.
  • Average property asking price: £166,000.


5. Swansea:

  • Swansea has two districts in the top 25.
  • Average annual ROI: 8.5%.
  • Average property asking price: £203,000.


6. Leeds:

  • Leeds boasts two districts in the top 25.
  • Average annual return: 8.2%.
  • Average property asking price: £179,000.


7. Glasgow:

  • Glasgow offers a decent annual return of 7.7%.
  • Lowest average property asking price among top performers: £115,000.
  • Glasgow has two districts in the top 25.

These figures provide a clear overview of the attractive rental investment opportunities in various UK areas, focusing on annual returns and property prices.


What about the Renters (Reform) Bill – is it bad news for landlords?

Renters Reform Bill Impact on Landlords:

The majority of landlords who already manage their properties professionally and care for their tenants well should not be significantly affected by the Renters Reform Bill, provided its contents don’t change significantly. Our landlord research indicates that 40% of landlords surveyed stated that the bill would not alter their property investment approach, while 33% said it would, with 27% still undecided.


Renters Reform Bill Highlights:

  • There will be a fee for signing up to the Ombudsman and the new portal, but the government assures it will be “proportionate and good value.”
  • The removal of Section 21 evictions is not expected to make a significant difference for most landlords. Section 8 grounds for eviction will remain an option.


Decision-Making Steps for Landlords:

If you’re uncertain about holding onto your rental property or selling it, consider these steps:

1. Check Your Cashflow: Examine your ongoing expenses and ensure your property or portfolio remains profitable.

2. Know Property’s Current Value: Assess recent capital growth, which may offset any loss in income or monthly profit. Get an accurate market valuation from your local branch.

3. Calculate Break-Even Point: Consider mortgage rates reaching 7-8% and evaluate if you’d still make an acceptable profit or could handle losses until rates fall.

4. Explore Refinancing: If your property’s value has risen significantly, refinancing at a lower loan-to-value ratio (LTV) may secure a better interest rate, potentially reducing mortgage costs.

5. Evaluate Investment Objectives: Ensure the property aligns with your investment goals. If it covers its own costs and meets your objectives, selling may not be necessary.

Local property market variations can be substantial, so consulting with local experts, like your branch’s team, is advisable to understand your immediate area’s dynamics and rental market prospects in the coming months.


MORE Buy To Let blogs HERE: 

Buy To Let Defaults Surge with Rising Rates

Cashing Out of Buy To Let? Top Places to Make a Quick Sale

Buy-to-let Home Insurance UK

Why Are Buy-to-Let Mortgages Interest Only?

Is Buy-to-Let Still Profitable Today?

A Comprehensive Guide to Buy-to-Let Mortgages

First-Time Buyer’s Guide to Buy-to-Let Mortgages


How do I get started with buy-to-let?, Is renting houses profitable UK in 2023?, Is renting houses still a worthwhile investment?, Top 5 Areas With the Best Rental ROI in the UK

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