Buy to let residential model – no longer feasible ?

By Hitesh Patel, Group Financial Controller

I became an accidental Landlord back in 2010 looking for an investment return to out- perform the 0.5% bank interest I was earning at the time.  15 years on and now sat on a small portfolio of Buy To Let (BTL) properties, I ponder what the next 15 years has in store for me and the wider BTL market.  It would be fair to say that investing in residential property is not as lucrative as it once use to be, and I question whether the BTL investment model is still fit for purpose, given:

• Increased Regulation: Many landlords are now having to cope with increased regulation.  For instance, in the UK, there are requirements for energy efficiency (e.g., EPC ratings), tenant protections, and selective local authority licensing schemes. Compliance can be costly and time-consuming. 

• Higher Tax Burden: Tax changes have made BTL less attractive.  The mortgage interest tax relief has been replaced with a 20% tax credit, reducing profitability for higher-rate taxpayers.   An additional 3% Stamp Duty Land Tax surcharge applies to BTL and second homes. Capital gains tax (CGT) is payable when selling a property, and rates for landlords are higher than for other investments. 

• Rising Mortgage rates - The days of low interest rates are now a distant memory, and many landlords have been exposed to high mortgage rates raising the cost of borrowing.  Many landlords are struggling to cover mortgage repayments with rental income, especially if they’re on variable-rate or tracker mortgages.

• The rise of build-to-rent (BTR) developments and large institutional investor appetite for this has increased competition. These professionalised rental operations can often offer better facilities and lower costs, making it harder for small landlords to compete.

• Tenant-Favourable Policies – The Labour Government, through the Renters Rights Bill, are intending to introduce policies aimed at protecting tenants, such as rent caps, eviction bans, and limits on rent increases. While beneficial for tenants, these reduce landlords' flexibility and profitability.

These factors combined have significantly eroded the profitability of buy-to-let investments, leading many landlords to sell off their properties or avoid entering the market altogether. 

In fact, recent research carried out by RICS, shows there is evidence of landlords moving away from the BTL market with a decline in landlord instructions of -24%.  Read the full research document here.

Time to consider an alternative….

Exploring alternative investments like Barwood Capital’s Residential Investment Platform (BRIP) could be a smart move to grow, diversify, and stabilise your portfolio while minimising the challenges of direct property ownership.  Barwood, have an innovative Platform offering through BRIP, allowing Landlords to have exposure to the residential property market, whilst generating strong returns.

Investing in BRIP offers existing Landlords;

• Diversification - Investing in residential property funds like BRIP, allows you to spread your investment across multiple developments, reducing risk. Unlike owning a single property, your exposure isn't tied to one location, one tenant, or a single market segment.

• Hassle-Free Management - Managing rental properties can be time-consuming, with responsibilities like maintenance, tenant relations, and compliance. Platforms like BRIP eliminates these concerns, as experienced managers handle all operational aspects.

• Potential for Stronger Returns - Residential development vehicles often target projects with significant growth potential, such as new builds or regeneration schemes. These projects can offer attractive returns, particularly in high-demand areas where housing shortages persist.

• Tax Efficiency - By investing through a vehicle, you may benefit from tax-efficient structures. This can be especially advantageous compared to the increasing tax burdens associated with direct property ownership, such as stamp duty or capital gains tax on individual properties.

• Flexibility and Liquidity - Unlike traditional property investments, many vehicles offer more flexible entry and exit points, allowing you to adapt your investment strategy more easily to changing market conditions or personal financial goals.

It’s becoming increasingly difficult for Landlords to operate, given the political and legislative climate, and this alternative offer provides Landlords a different and more diversified investment opportunity.  Exploring alternative investments like residential development property vehicles could be a smart move to grow, diversify, and stabilise your portfolio, whilst minimising the challenges of direct property ownership.

To learn more about the Barwood Residential Investment Platform, click here