BTL profits plunge to their lowest since 2007

Average net profits for landlords are now at their lowest level since 2007.
In the first quarter of this year they fell below 4% on average, marking a dramatic shift in finances for mortgaged buy-to-let investors.
According to research by Savills it means there is a “very real risk” landlords will leave the Private Rented Sector (PRS).
Savills suggests the fall in profits is due to the impact of 12 successive increases to the Bank of England base rate, exacerbated by restricted tax relief.
Savills’ research shows between 2014 and 2021, landlords on average were making ‘year 1’ cash profits of 23% of rental income, but successive interest rate hikes have seen this figure plummet to under 4% this year.
With the ongoing cost of living crisis, incoming Renters’ Reform Bill, the abolition of the Assured Shorthold Tenancy, increasing EPC regulations, inflation in double digits and the Bank of England base rate and mortgage rates likely to rise again, many landlords will face even more financial pressures and could look to exit the sector. This is despite the growing tenant demand.
Landlords’ ability to make a margin will depend on their levels of debt and viability will be a real issue for those with higher levels of debt.
According to Savills’ research, three in four mortgaged buy-to-let properties have a loan-to-value (LTV) of less than 60%, while one in three have an LTV of less than 50%.
In Q1 2023, those with an LTV of 60% were able to generate an average profit of 10.2% while those with a 50% LTV generated 16.5%.
In another blow to the sector, many landlords who have been active since buy-to-let took off in the early 2000s are now nearing retirement. Unless they are able to offload their portfolios to the next generation, more stock will be lost.
According to Savills’ research, 1,911,000 properties are currently owned by 620,000 landlords aged over 65. A further 1,982,000 are owned by those aged between 55 and 64.
Sheldon Bosley Knight’s associate director, Nik Kyriacou said: “The sector is in dire straits and so the government does need to act.
“There is a double whammy of those landlords nearing retirement or who are doing so now alongside the erosion of the profits investors have enjoyed up until now.
“The government does need to treat landlords as sole trader and afford them the same tax benefits as other business owners and entrepreneurs. If no action is taken the PRS will disintegrate which will help no one, landlord or tenant.
“Buy-to-let is still a solid investment, and like any market cycles, the PRS will recover, so we would encourage our landlords to stay in the sector, and we hope the government will listen.
“As ever, if any of our landlords would like advice or help with their portfolio, please do call us and we would be happy to help.”