Landlords could see a net profit of £265,000 over 25-years on a typical buy-to-let property, despite the recent tax squeeze, according to new figures from Kent Reliance.
The calculations by the specialist lender shows that long-term property investment is set to deliver significant returns for landlords, despite a raft of tax and regulatory changes.
Their figures reveal that a basic-rate landlord can expect a net profit of £265,000, through rental income and capital gains. This is over a 25 year period and after maintenance and mortgage costs plus taxes.
Kent Reliance – part of the OneSavings Bank – says this translates into a gain of £162,000 after inflation, or a profit of £6,500 per property, per year.
Larger tax bills means higher-rate landlords are on track to generate 24 per cent less profit over the period, but should still make net gains of £203,00 (again before inflation).
These calculations show that capital gains comprise a significant portion of this overall return. Assuming house prices and rents rise in real-terms by 1 per cent – which is well below their performance over the last 20 years – an average buy-to-let property, priced at £246,500 today should grow in value to £516,000 over 25 years.
Kent Reliance calculates that on this average property, the typical landlords receives rent of £10,134 a year, based on current yields, and accounting for void periods each year.
Over the course of a 25-year period this would generate a total rental income of £369,495 which would cover outgoings and provide a profit of £65,000 – even if the property was not sold.
The figures show considerable regional variation, with the biggest profits to be found in the capital, although this requires far larger initial outlays and higher ongoing costs.
OneSavings Bank sales and marketing director John Eastgate says: “Regulatory and taxation changes have altered the market dynamic, reducing its attractiveness to amateur landlorss, and increasing the tax bills of higher-rate investors.
“But in spite of rising costs there are still healthy returns to be found in property for committed investors.”
He suggests the days of speculation are gone. “This is a long-term business endeavor, requiring commitment and expertise.”
He adds that policy change remains a threat to longer-term profitability. But he called on the government to ensure the role of professional landlords is not further undermined. “Without them the supply of housing in the sector would naturally shrink, leading to higher rents for a growing number of tenants competing for accommodation.”