Despite the widely publicised exodus of UK landlords exiting the traditional market and moving into short-term letting, the UK's buy-to-let sector remains vibrant and profitable, but you have to know where to look.
Newly released research from CIA Landlords highlighted the top 10 locations where landlords can potentially make the most BTL profits, with Brighton, Bangor, Portsmouth and Leeds taking the top spots.
Ranked at the bottom of the table is St Albans, with the poorest prospects for landlords this year, with some potentially making a loss of more than £700 a month. Only six locations in London remain profitable, with the majority of boroughs losing money. In fact, the research reveals that profitability in the Capital has nearly halved since January 2020, amid a major exodus during the pandemic.
Brighton remains the most profitable place to be a landlord for the second year running, with landlords in the coastal town making a monthly profit of around £570.
The findings, which took into account rental fees charged to tenants and landlord costs, reveals that the top five locations to be a landlord include Bangor in 2nd place (£500.53), Portsmouth in 3rd place (£479.27), Leeds in 4th place (£477.60) and Lancaster in 5th place (£474.54).
Stuart Williams, Director of Thirlmere Deacon, commented: “Over the last few months, some landlords have seen their profits dented due to the Chancellors’ tax measures that are only now taking effect. Undoubtedly, it is becoming more difficult for amateur investors to make a profit in the buy-to-let market due to legislation changes and financial pressures, there is still a lot of money to be made if landlords and investors make the right investment decisions.
“If investors can purchase cheaper properties with higher yields, they will have the opportunity to protect and boost their profits in the longer term. For example, an average residential property in London is around £500k with rental yields of circa 2%, while a flat in a good area of Manchester could cost half the price and generate 6-7% rental yields on top of 4-5% annual capital appreciation
“Landlords should review their existing portfolio to see if they can boost rental income and protect profits, by attracting a different market. Landlords will often find the best returns in urban areas, with a concentration of students and young professionals.
“It is also worth landlords considering setting up a Limited Company and using this structure to hold their properties. This will enable them to continue deducting mortgage interest when they are calculating profits. Landlords can also benefit from just 20% corporation tax, instead of income tax of up to 45%.
“Landlords need to do a serious portfolio review and work out how the tax changes affect them and what options there are to save or make more money. For example, remortgaging to get a better deal or renovating some old stock - these costs will be tax-deductible. Alternatively, landlords could consider selling some properties or increasing the rent.”