Five benefits of buy to let in 2024

Over the past five years, rental yields in Greater London have increased by 11 per cent, and growth is expected to continue. That’s just one of the reasons why London’s buy to let market is seen as a safe haven for long-term investment.

A cut in the bank rate—which affects the cost of buy to let mortgages—is expected in May, which should boost mortgage dependent landlords.

However, there are many other advantages to becoming a landlord in 2024. After an analysis of the latest buy to let changes, we have identified five reasons why buying a rental property should be high on your investment wish list.

1. Rising rents

Greater London offers an average rental yield of 4 per cent, putting it amid the top ten highest-ranking UK regions for buy-to-let investment.

Rental prices soared in London last year, with an increase of 6.9 per cent—the biggest hike since the Office for National Statistics (ONS) began recording information on London rents in 2006. After such a significant rise in prices, Zoopla has predicted that rents will increase by just 2 per cent in 2024. However, some industry experts have predicted a 3 - 5 per cent rise.

Currently, the average rent in Westminster is £3,153 per month, while the City of London sees average rents of £2,629 per month. If you are renting in Kennington (in the borough of Lambeth) or Bermondsey (Southwark) you can expect to pay average monthly rents of around £2,181 and £2,217, respectively (figures provided by Zoopla).

2. Falling inflation cuts interest rates

Rising interest rates—triggered by high inflation—dampened enthusiasm for buy-to-let investment throughout 2022 and 2023. However, inflation is now falling, which should prompt the Bank of England to reduce the base rate.

Although the rate has remained steady at 5.25 per cent since last summer, mortgage lenders have been cutting the cost of their products. In early January, we even saw a price war between lenders. Prices have gone up a little since that time but nevertheless remain lower than they were at the start of the year.

If the Bank of England implements its long-awaited base rate cut in May, we should see mortgage costs come down even further.

3. Buy to let confidence is growing

The buy-to-let sector may have experienced some ups and downs in past years, but now there are clear signs that optimism is building once again.

Research published in January by The Mortgage Lender revealed that 74 per cent of landlords felt positive about their own prospects over the next 12 months. A high proportion also had high hopes for the future of the property market in general.

Another survey conducted by mortgage lender Together found confidence was high enough for a third of respondents to consider expanding their property portfolios in 2024.

4. More landlords adopt the company model

Increasing numbers of landlords are deciding to take on company status in order to get the most from their profits. Last year, 50,004 landlords (a record figure) set up limited companies.

The financial benefits of operating as a company include:

• Offsetting mortgage payments against tax
• Paying a lower rate of tax (Corporation Tax, charged at 19 per cent) than would otherwise be due
• Not being liable for Capital Gains tax when a property is sold.

Landlords owning single buy-to-let properties were the largest group to incorporate their businesses in 2023. This is possibly driven by the knowledge that landlords who own properties in their own name will get a smaller Capital Gains Tax allowance from April.

5. Help for landlords this year

While the recent Spring Budget failed to deliver everything landlords had hoped for, it nevertheless offered some help with Capital Gains Tax. Payable on second homes, buy-to-lets, and holiday lets, Capital Gains Tax has now been reduced from 28 per cent to 24 per cent for higher rate payers. The lower rate of 18 per cent will remain unchanged.

Landlords should also be aware that this is the last year to take advantage of the Stamp Duty Land Tax (SDLT) reduction introduced in 2022. The nil-rate threshold with be available for properties costing up to £250,000 until 31st March 2025. After that the threshold will revert to £125,000.

How do I pick the right investment property?

The London lettings market is a complex and fast-moving environment where expert knowledge is essential if you want to make the most of your money.

Here at Daniel Cobb, we believe it is vital to protect your investment capital by getting professional financial advice. That’s why we recommend Springtide Capital Mortgage Brokers, an independent broker with whom we have worked for over ten years. Please feel free to contact them directly for impartial and professional advice: zhatcliff@springtidecapital.com.

As independent estate and letting agents in London, we are also always happy to advise, whether you are a landlord with just one property or the owner of a large portfolio. Additionally, we can provide a highly-rated, super-efficient property management service.

Why not get in touch and share your plans with us today?