Is the buy-to-let era over? A senior housing industry figure has said that individual landlords are being replaced by pension funds and private equity firms.
According to Charlie Bryant, CEO of Zoopla’s parent company Houseful, buy to let no longer makes sense for individual investors due to tax changes (like the loss of tax relief on mortgages) and high interest rates. Instead, he believes that build to rent is the future of the private rented sector – and that the government’s planning proposals will pave the way for large-scale investment by corporate landlords.
But new yield figures from Paragon Bank suggest that buy-to-let can still be a good investment. Landlords enjoyed an average yield of 6.3% in Q2 2024, the best seen since 2014 and significantly up from the 5.2% recorded a year ago. According to Paragon’s Managing Director of Mortgages, Richard Rowntree, “this is evidence that with the correct strategies, even the challenges of the past year or so can be overcome”.
Even so, landlords with 11 or more properties and landlords who use a limited company structure enjoyed the best returns, averaging 6.9% – and suggesting that professionalism pays off.
Build to Rent expanding
Could Build to Rent replace BTL investors? It’s certainly a growth industry. Knight Frank’s latest BTR market update says that this year, BTR has accounted for around 9% of all housing delivery, and the sector is on course for a record-breaking year with more than 11,000 homes completed at the end of the quarter.
This summer, multiple high-profile projects have been launched. John Lewis has secured permission to build its first residential development in London, providing 320 rental homes. And Lloyds Bank’s BTR business, Citra Living, has started work on a £13m development in Nottingham.
It could be some time before Build to Rent can match the economic contribution of smaller landlords, though. Knight Frank found that there are 114,207 completed BTR homes in the UK, with a further 62,030 under construction. By comparison, a PwC report commissioned by Paragon Bank and the National Residential Landlords Association (NRLA) found that small and medium landlords in England and Wales supply 3.8 million homes and contribute £45 billion to the economy each year. By comparison, a PwC report commissioned by Paragon Bank and the NRLA found that small and medium landlords (those with fewer than 15 properties) in England and Wales supply 3.8 million homes and contribute around £4.5 billion to the economy each year.
Even so, BTL landlords might be able to learn from institutional investors. According to Landlord Action founder Paul Shamplina, BTL landlords will need to professionalise to succeed in an increasingly regulated market: “Landlords will need to strategise; see their lettings as a business, with themselves as providers and their tenants as customers.”
Those who don’t want to devote themselves to managing their portfolios full time could also work with professional letting agents who can navigate a complex regulatory landscape and protect their investments.
Other housebuilding headlines
Persimmon numbers hint at brighter times for UK housebuilding – Mortgage Finance Gazette
New build-to-rent homes up by 24% year on year – Mortgage Strategy
Are stone bricks the eco answer to the UK’s housebuilding targets? – Financial Times
