Is Buy-to-Let Still Worth It?

Buy-to-let property investment is unique among investment strategies as investors earn returns in two distinct ways.

Rental income gives you a monthly cash flow from the rent your tenants pay each month. This creates a passive income straight to your pocket.

Rents have risen steadily across the UK for many months now. Land Registry data taken from their Index of Private Housing Rental Properties shows that on average, rents in the UK have risen by 5.1% since June 2022.

This means investors are making more money on average from their rental income.

As well as this, capital appreciation means that buy-to-let landlords get long-term returns from their investment properties.

As a physical asset, property rises in value over time, so by the time investors choose to sell their buy-to-let investments, they will be in line to make a serious profit.

In recent years, this has skyrocketed to record-breaking levels, as house prices grew exponentially in the wake of the COVID-19 pandemic.

Over the last five years, property prices across the UK have risen by an average of 26%, per data from the UK House Price Index.

This means that holding onto an investment property for as little as five years could have seen investors make nearly £60,000 in profit, outside of the rental income they would have collected.

This combination of return methods helps property investment stand out from the crowd as the best thing to invest in right now, and for many, is a reason why buy-to-let is still worth it in 2023.

Due to a lack of new homes being constructed, there has been a massive supply and demand imbalance that benefits the rental property market immensely.

This has helped to drive rental growth, as tenants are snatching up rental properties far faster than in the past.

Especially in major city centres such as Liverpool, Manchester or London, there is a massive gap between the number of available rental properties and the number of potential tenants.

The Evening Standard has reported that landlords are being forced to organise mass viewings to meet demand, and it is not uncommon for tenants to enter bidding wars over rental properties.

In addition to this, the rising mortgage interest rates caused by the level of inflation the UK is currently seeing has many who would otherwise afford to buy their own home choosing to rent instead as a way of saving money.

All of this benefits buy-to-let landlords, who don’t have to deal with prolonged void periods or low demand from tenants, and is causing the rental market as a whole to thrive.

The high demand for quality rental properties means that oftentimes, buy-to-let landlords can afford to regularly raise their rents in line with inflation and that there will be tenants willing to rent out the property.

The potential for high demand from rental properties in the UK highlights the importance of choosing the right property to let out to generate as much interest as possible, as discussed in our helpful guide.

While we’ve covered some of the key reasons why buy-to-let is still worth it in 2023, we must cover the other side.

We fully believe that buy-to-let is still worth it, but it wouldn’t be fair if we don’t discuss some of the counter-arguments so you have a clearer picture.

Given that capital appreciation is one of the two main ways that property investors earn returns, it might be alarming for some to see that house prices have steadily been falling for several months.

Since hitting an all-time record high peak in September 2022, the average house price in the UK has slowly but surely fallen as the cost of living crisis made buying property unaffordable for many.

High numbers of people have been leaving London for cheaper areas, as reported by The Evening Standard, due to an inability to afford to buy inner-city property.

Because property is so expensive in 2023, demand is beginning to fall. Zoopla is reporting that transactions are down 6% from pre-pandemic levels. This is causing prices to drop as people are simply not buying property as much as they used to.

This means that, at least for the next year or so, buy-to-let investors should be cautious about selling their investment properties as they will not net as much of a return.

Given the downward trend that the housing market is seeing right now, this is acting as a sign for many that buy-to-let is not worth it in 2023.

As mentioned earlier, buy-to-let property can come with a hefty price tag.

With buy-to-let mortgages having sky-high interest rates and property prices themselves being less than a year removed from an all-time peak, you will need to have a substantial budget to invest in property.

There are ways of getting around the expense, as well as spreading it out over time.

Firstly, where you invest will play a big part in how much you spend. Cities with more affordable property prices that are below the national average will mean investors can buy investment properties with a lower budget.

This includes locations like Liverpool and Manchester, where rental yields are also high, making them ideal cities for buy-to-let investors. Read our Liverpool investment guide for more insight on buying property in this area.

You can also find properties with payment plans available to be set up, as these allow you to spread out the cost of investing while avoiding the expense of a buy-to-let mortgage.

Even basic-rate taxpayers could potentially be paying a large amount of tax, so it is also important to understand how much tax you are likely to pay, as this will affect your budget.

Property is a long-term investment strategy, which means you’ll be holding onto your investment property for a long time to make a strong return on your investment.

This means that if you are looking for a get-rich-quick scheme, property investment is not the strategy for you.

Buying property takes time, even more so with second homes sometimes. Estate agents will want their cut and have to perform paperwork for you, while you will need to ensure your finances are in order and have to find tenants to fill your properties.

However, if you are fine with being patient and letting your returns develop over time, then property investment can be a seriously rewarding investment strategy.

Many buy-to-let investors choose to hold onto their properties for years or even decades, so they can collect lots of rental income while benefiting immensely from capital appreciation.

We wholeheartedly believe that buy-to-let is still worth it in 2023.

The combination of security and long-term returns is unmatched, and it can be more affordable than you think if you are savvy with how you invest.

By working with a property investment company, you set yourself up to make serious returns with far less stress than if you were to do it alone.

Major cities like Liverpool and Manchester are still showing strong rental growth despite less-than-ideal conditions.

For these reasons, we believe that the good far outweighs the bad and that buy-to-let is still worth it in 2023.