Is Buy to Let still an attractive investment?

Is Buy to Let still an attractive investment?

Following an analysis of the market, Private Finance believes that although buy to let remains an attractive investment in the immediate future, it also warned that accessing finance will now be the biggest challenge for amateur landlords in the new market landscape.

Private Finance’s analysis takes several key factors into account including the reduction in higher rate tax relief, the stamp duty increase and the outlook for house prices and yields. The broker has also considered the impact of the European Mortgage Credit Derivative (MCD) and concluded that whilst these factors may have a negative impact, they are unlikely to dampen the market altogether.  

Private Finance has applied its model to a typical buy to let situation in a typical commuter town. Its findings demonstrate that a potential 62% return on capital could be achievable, if the investment is held for a term of at least five years utilising a fixed rate mortgage at 3.6% for the duration which is currently available in today’s market.

Whilst a number of commentators have suggested that annual capital appreciation of as much as 5% is achievable in areas such as this, Simon Checkley, Managing Director of Private Finance has said that a buy to let still remains viable at a lower rate of appreciation.


Checkley says:"Of course, these figures assume the full extent of the tax relief reduction and stamp duty hike so the short term returns could look more attractive if you are able to take immediate action and complete a purchase before 1 April 2016 when the increased stamp duty will apply.

We are not underestimating the impact of the loss of higher rate tax relief or the increase in stamp duty on the market. What we are saying is that they are not necessarily 'deal breakers'. Of course, there have been many protestations in recent weeks from concerned landlords as a result of the planned tax changes. What is less commonly recognised is that there are still opportunities in this market if an investor makes a sound purchase subject to other underlying economic factors.

Understandably, many landlords are claiming they will lose considerable sums of money as a result of these changes. However this does beg the question of the true viability of their original investment.’

Checkley added: "With regards to house prices versus yields, it can be difficult to make things work in London because house prices are such that yields remain relatively low. This obviously affects the amount of mortgage you can obtain and therefore the attractiveness of buy to let as a whole. However, a number of commuter towns by contrast are offering both the potential for capital growth as well as decent yields."

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Latest Comments

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

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Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

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Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

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Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

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James Powell
James Powell 27 Feb 2017

This is a very good news.

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DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

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Matt
Matt 20 Feb 2017

Is this fake news?

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Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

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CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

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