Buy-to-let Investments: Safe as Houses?

In 2016 we saw a real shake up of legislation surrounding property investments. The principal change, and the one which made such investments far less appealing, concerned stamp duty. From 1st April 2016, those purchasing a property for buy-to-let purposes have been subject to what’s known as the higher rate of stamp duty.

The higher rate of stamp duty is an additional 3% charge, which is added to the usual stamp duty rates. The effect of this has been substantial. Just take a look at the numbers. A prospective landlord hoping to purchase a £200,000 property as an investment is now required to pay £7,500 in stamp duty. Before the introduction of this tax, the same buyer would owe £1,500.

Further changes followed, and these updates weren’t great news for private landlords either. The following April saw the announcement of changes to income tax relief, limiting it to the basic rate of tax (20%). This resulted in higher tax bills for the vast majority of landlords, and even left some landlords paying more income tax on properties with negative cashflow.

These changes have certainly taken a bite out of the profits of private landlords, and have left many asking the question: are buy-to-let investments still worthwhile?

With many other investment opportunities available, it’s vital that landlords take a close look at their options and evaluate whether their property investments are working as hard as they should be.

Rental Yield Returns: The Regional Picture

Looking at regional differences in rental data is a great place to start. Across the UK, we’ve found considerable differences in the rental yields of properties, when compared to their overall value. It’s not just a case of investing more money in higher-valued properties to get the best returns. In fact, it’s quite the opposite.

The greatest annual yields from property investments can be seen in the North East. Here, yields are in the region of 6.7%. The national average is lower, at 5.2%. The Midlands, Wales, Yorkshire and the Humber bring in yields in the region of 5.38-5.75%. Properties with the largest price tags in Inner and Outer London offer yields of 4.29% and 4.56% respectively.

If you want to get the most for your money, Sunderland could well hold the key. In this city, landlords have enjoyed the greatest yields in the UK. The average yield in Sunderland is 7.6%, with the average rental property valued at less than £100,000.

It’s important not to completely dismiss areas with lower rental yields, though. Even in areas such as West London, where yields are around 3.9%, landlords are still getting a decent return on their money. And when we think about the increasing value of the overall investment, and any subsequent capital gains benefits, such an investment makes perfect sense.

Property has long been seen as a safe investment option, and even in the current climate this remains true. Despite stagnation in the market since the 2016 EU Referendum, patient homemovers are unlikely to be stung when they put their money into property.


Property vs Other Investment Opportunities

It’s impossible to fully evaluate the investment opportunities of property without delving a little deeper into other investment options. In buy-to-let properties, the average rental yield in the UK is 5.2%. But that’s just from the rental income itself. Consider this in conjunction with other benefits, such as the increase in value of the original asset, and the advantages of investing using a buy-to-let mortgage, and you’ll quickly see those returns rise.

For instance, looking at HMLR Price Paid Data for 2014-2018 completions, the average growth in property prices observed is 6.4% nationally. Combine this with the national average rental yield of 5.2%, and buy-to-let investors can make an average annual return of 11.6%.


Savings Accounts

Those looking for a safe, secure way to grow their money have long turned to savings accounts. Such accounts tend to be preferred by cautious individuals, as money is protected (up to £85,000) and returns are guaranteed. However, these accounts do not offer the top returns. The majority of easy access savings accounts provide interest of 0.5% - 2% per annum. Those keeping an eye out for the best deals might be able to pick up interest rates of up to 5% per annum, but such accounts often come with strings attached (i.e. limits to the amount in the account, time restrictions or limits on withdrawals). 


Stocks and Shares ISAs

Stocks and shares ISAs are a popular investment option, as they can provide tax free returns of 5-6% per annum. Their main benefit is largely down to the personal allowance which applies to these accounts. Interest is regarded as tax free earnings, meaning no income tax or capital gains tax applies.


Stock Market

Investors looking for a greater return can also consider stock market investments. Whilst the S&P 500 index returns an average of 10% annually, the risks are as high as the returns. Unlike property investments, stock market investments are not invested in anything tangible. So, investors need to think carefully about the potential consequences of unwise investment decisions.




Today, buy-to-let investments aren’t quite as lucrative as they once were. Changes to stamp duty and income tax relief have diminished the returns of some investments, and made landlords think twice about where to put their money. However, when we compare buy-to-let properties with other investment opportunities currently available, it’s clear that property remains one of the most profitable options. Low risk, cost-effective and highly lucrative in the long term, buy-to-let investments really are safe as houses.

Posted on

27/09/2019 by Stuart Ducker

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