Investing in buy-to-let property used to be all the rage. Most of us know of at least someone who seems to have done pretty well from it. And when we see people around us who’ve made what looks like “easy money”, it’s human nature to wonder whether we should follow their lead.
But the number of amateur landlords in the UK has plummeted over the last five years. Figures from Savills show that the buy-to-let landlords with mortgages spent £14.6bn on domestic property in 2024 — down from £17.7bn in 2019.
So why has it happened? Lucian Cook, director of residential research at Savills, says the buy-to-let sector has suffered what he calls “severe to extreme levels of disruption” in recent times.
For smaller landlords with one or two properties to their name, he says, “the income tax changes introduced back in 2015 have exacerbated the detrimental impact of higher interest rates on their finances.”
Another significant factor, Cook believes, is the Renters’ Rights Bill, which is currently going through Parliament. Under the bill, Assured Shorthold Tenancies (ASTs), the most common type of tenancy agreement used in the private rental sector, are set to be abolished. The bill proposes replacing ASTs with a new system of periodic tenancies that provide tenants with greater security of tenure.
“The tabling of the Renters (Reform) Bill,” says Lucian Cook, “has compounded matters further, prompting the bulk to curtail their investment activities and others to reach for the oxygen mask.”
Larger, equity-rich landlords, he says, have been much better placed to weather the storm, but demand for mortgages from smaller landlords is likely to continue falling.
On top of all this, recent data from Zoopla show that rental growth is at a three-and-a-half year low of three per cent — down from 7.4 per cent this time last year.
Eight things to think about before investing
In a nutshell, then, investing in buy-to-let property is far less attractive than it was, say, in the mid-1990s.
That’s not to say that it’s a bad idea entirely. Indeed, new research from Hamptons suggests that small landlords can still expect double-digit gross yields in parts of northern England and in Wales, where prices are lower than the national average.
However, the case for buy-to-let is far weaker than it used to be, and it’s very important to consider the downsides before investing.
Here’s a list of things you need to bear in mind:
- Property is a highly illiquid asset, and it may take you many months or even years to sell it. Unlike equities, which can be bought and sold instantly, property transactions are slow, complex, and expensive. Even in a strong market, the process of finding a buyer, negotiating a price, completing the legal work and finalising the sale can take several months.
- Your income depends on reliable tenants. Your tenants could lose their job, become ill or have an accident, and fall into arrears. When tenants leave, or you have to evict them, your property could be empty for a long time. In addition, property damage or disputes with tenants can lead to unexpected repair costs and legal expenses, further reducing your rental yield.
- If you own, or have a mortgage on, your own home, you are already heavily exposed to residential property, and therefore to concentration risk. By investing in buy-to-let, you’re doubling down on property exposure — tying up even more of your wealth in a single asset class. If house prices fall, you won’t just suffer from a potential decline in the value of your own home, but in the value of your investment property as well.
- When house prices fall, they can fall fast, and you could find yourself in negative equity, where the value of your property drops below the remaining mortgage balance. This is a serious risk because it limits your ability to remortgage or sell without taking a financial hit. Remember, too, that housing downturns can last for several years.
- The frictional costs of buy-to-let are considerable and can really eat into an investor’s returns. Upfront costs include estate agents’ fees, Stamp Duty, legal fees, mortgage arrangement fees and survey costs. Ongoing expenses such as landlord insurance, property maintenance, letting agent fees and compliance costs must also be factored in.
- Property requires regular maintenance, and it’s never a good time for tenants to call you to say that something needs fixing. If you don’t want the responsibility of maintaining the property yourself, you could be paying upwards of 15% of your rent to a property manager.
- Owning a buy-to-let property involves significant administration. Tasks include drawing up and renewing a lease agreement, arranging insurance, keeping records of expenses, and providing tenants with, for example, an Energy Performance Certificate and Gas Safety Certificate.
- New tax rules have made buy-to-let far less appealing from a tax point of view than it used to be. Since the changes in 2015 referred to earlier, for example, mortgage interest tax relief has been greatly restricted, Stamp Duty on buy-to-let purchases has increased, and the Capital Gains Tax allowance for landlords has been reduced.
Consider the risks — and the hassle factor
Again, buy-to-let investing is not a black-and-white issue. There may be a case, for example, for buying a property for your children or grandchildren to live in. You could, if you wanted, buy the property in joint names, though there are downsides as well as advantages to that as well.
The bottom line is that there are risks involved in any investment, and that includes residential property. Yes, we’ve seen impressive growth in UK house prices in the UK over the last 30 years, but that certainly won’t last indefinitely. If prices fell sharply, you could easily lose money.
One final thing: don’t forget the hassle factor. Investing in equities is virtually hassle-free, but buy-to-let property definitely isn’t. If you already lead a busy life, do you really want the bother of dealing with a tenant who’s behind with the rent or a boiler that breaks down on a Saturday night? If you don’t, think very carefully before taking the plunge.
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