The total return of the average BTL property has dropped by 6% over the last two years, despite rental income climbing by 19%, revealed the latest research from Octane Capital.
According to the firm, this is due to a sharp increase in mortgage costs and agency fees and a reduction in capital appreciation.
The figures come from the specialist lender’s analysis of the cost of being a landlord, which looked at the initial costs required when investing in a BTL, as well as the ongoing expenses associated with such an investment versus the total return expected in the current market.
Octane Capital then compared this current cost (2023/24) to the same data from two years ago (2021-22) to see how the sector has changed when it comes to BTL profitability.
According to the research, the initial start-up costs associated with a BTL investment have dropped by 17% to £9,952 — this decline has been largely driven by a reduction in stamp duty and the cost of tenancy deposit registration fees.
In addition, the average rental income has increased by 19% over the past two years, now totalling £15,144 per year.
However, these have been counteracted by an 18% increase in the costs associated with maintaining a BTL investment, amounting to £15,592 per year, as well as a 6% decrease in capital appreciation — thus resulting in the drop in BTL returns.
“The average landlord has benefited from a very healthy level of rental income growth in recent years and so, while the level of capital appreciation seen on their property may have cooled, both aspects of their investment are still bringing healthy returns despite the instability of the current market landscape,” said Jonathan Samuels, CEO at Octane Capital.
“Of course, higher running costs — most notably as a result of higher mortgage rates — have dampened the overall net return they’ve seen.
“However, it’s fair to say that this reduction in net profits has been fairly marginal considering the current economic landscape and the storm of property market uncertainty that we’ve weathered in recent months.
“There are still a great deal of opportunities available that will allow BTL investors to reduce their borrowing costs in the current market, and utilising a specialist lender is the best way to secure these.
“While the government is also looking to tempt more landlords away from the sector with their reduction in capital gains tax, our research shows that it remains a profitable endeavour, albeit slightly less so today versus a few years ago.”
