According to a report from Octane Capital, which looked at BTL initial investment, ongoing costs and total return, ongoing costs went up by 18% in the last two years to a total of £15,592 per year.
This includes BTL void periods, mortgage interest, agency management fees, landlord insurance, tenancy deposit registrations and average annual maintenance and repairs.
The largest increases were for mortgage interest per annum, which has jumped 25% to £10,210. This was followed by agency management fees, which has gone up by 19% to £1,817 per year, and the cost of void periods, rising 7% to £747.
However, BTL initial start-up costs have contracted by 17% to £9,952, as stamp duty has gone down 21% to £8,438. Agency fees have increased 19% to £1,514, and tenancy deposit registration is no longer applicable.
The report noted that average annual rental income has risen by 19% to £15,144 over the period, and average rental yield has ticked up by 17% to 5.8%.
Capital appreciation has decreased by 6% to £15,728.
Govt digitalising tax ‘will add a further cost’
Jonathan Samuels, CEO of Octane Capital, said that the average landlord has “benefitted 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”.
He continued: “Of course, higher running costs, most notably as a result of higher mortgage rates, have dampened the overall net return they’ve seen. But 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.”
Samuels said: “It’s important to note that the government’s insistence on making tax digital will add a further cost to consider, although with an initial start-up cost of £350 and an ongoing cost of around £110, it’s unlikely to reduce the appetite for investment.
“And 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.”
If you are interested in learning more about the BTL sector, then register for The Buy to Let Forum, which takes place between 24 April and 2 May in Bolton, Birmingham, Cardiff and Reading.
