Capital growth key to making rentals pay

Research by leading rental portal Rentd shows that the return on the average buy-to-let property currently sits at £16,311 per year, up from £6,220 in 2019, though this does include London rentals, where the gain is much higher than in the North.

Rentd looked at the true cost of being a landlord based on the ongoing costs associated with a buy-to-let investment and how this balanced against the return on offer on an annual basis. For those starting out in the buy-to-let sector there are some initial costs to consider when investing. The most notable being the mortgage deposit required, which at an average of 25 per cent for a buyto-let property, equates to £64,750 on the current average buy-to-let price of £259,000.

There is also the inflated cost of stamp duty versus a residential purchase, averaging £10,720 on the average buy-to-let property, with agency costs such as tenant finding fees (£1,277) and tenancy deposit registration (£40) bringing the total cost of this initial investment to £76,787.

But once your buy-to-let investment is up and running how profitable is it in the current market?

The largest ongoing cost associated with a buy-to-let is the annual rate of interest paid on a mortgage, which equates to £8,159 on the average buy-to-let purchase. Annual maintenance costs also average £2,590 along with £1,532 per year in agency management fees. Then there’s the smaller costs including void periods (£700) and landlord insurance.

However, the average buy-to-let is estimated to return £12,680 per annum in rental income – a yield of 4.93 per cent. This means that the average landlord is making a loss of nearly £400. However, capital appreciation on a buy-tolet property has sat at 6.45 per cent, meaning an increase in property value of £16,693 per year.