New study shows that landlords already on the buy-to-let ladder feel financial boost of the buy-to-let tax dash.

  • Flurry of buy-to-let property interest in March pushes total annual returns to 12.2% for existing landlords
  • Across England & Wales rent rises average 3.0% over the last year, to now stand at £791 per month
  • Midlands powerhouse pushes record rents, reaching £597 in West Midlands and £613 in East Midlands
  • Minority of tenants still feeling financial squeeze, with 9.1% of rent in arrears, up from 8.8% last month

Existing landlords have already felt an unexpected financial bonus from the Government’s stamp duty hike aimed at new buy-to-let purchases, according to the latest Buy-to-Let Index from Your Move and Reeds Rains.

Taking into account both rental income and capital growth, but before property-specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns rise to 12.2% over the twelve months to March.

This is a clear jump from 10.7% seen a month before, over the twelve months to February, and is also the fastest annual rate of return for existing landlords seen since November 2014, when the same measure last reached 12.3%.

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In absolute terms this means that the average landlord in England and Wales has seen a return of £22,135 over the last twelve months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £13,494 while rental income made up £8,641 over the twelve months to March.

While a recent surge in capital values has boosted total returns for existing landlords, the same trend has suppressed rental yields for those aspiring to become landlords, or looking to grow their property portfolio.

As rents rise alongside property prices, rental yields are proving relatively resistant to rising purchase prices. However the gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) is now 4.9% as of March 2016, compared to 5.1% in March 2015.

Adrian Gill, director of lettings agents Your Move and Reeds Rains, comments:

“New tax changes intended to benefit owner-occupiers are now making it more expensive to become a landlord, at least for the time being. Ultimately this will only punish tenants and aspiring first-time buyers – driving out buy-to-let landlords will reduce supply leading to lower choice and higher rents for those that can least afford them.

“In particular, this month’s new stamp duty surplus has driven an extra wedge between those aspiring landlords planning to invest in additional homes to let, and those existing landlords who have already built up their portfolios. That difference will not last for long. But by making it more expensive to invest in property, it will hamper the healthy growth of the private rented sector. Over the longer-term there will still be a sharpening shortage of homes available, and rents will rise in line with any extra costs – so being a landlord will remain a profitable investment, though tenants will just see unnecessarily higher rents in order to price-in the extra bill for the taxman.

“In the short-term, there has also been a scramble to buy property before the deadline. As a result, a flurry of interest from property investors has boosted values, and delivered a bonus for existing landlords through faster capital growth. In search of political points, the Chancellor would do better to help tenants rather than punish landlords – but the most ironic part of the new tax regime is the additional bonus to the wealth of current landlords.”

Read the full report here

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