The important pros and cons of maintaining a buy-to-let business this year

For many people, a buy-to-let business is a worthwhile investment that may have earned you a considerable income in recent years.

You might have spent a number of years building up your property portfolio and earning the trust of your tenants. Or, you could just be starting your buy-to-let venture, exploring property prospects in your local area.

Whatever the stage of your buy-to-let venture, it is important to understand how the current economic climate might affect your business.

The Covid-19 pandemic, compounded with the UK’s current cost of living crisis, has made life difficult for tenants – leaving some landlords wondering whether having a buy-to-let business is still right for them.

Read on to find out some of the pros and cons of having a buy-to-let business in 2022, so you can best determine whether your venture is financially viable in the current climate.

The pros of having a buy-to-let business in 2022

  1. House prices are rising – potentially providing further rental opportunities for landlords

As UK house prices continue to rise, reports claim homebuyers are postponing their plans to buy this year.

Indeed, according to Moneyfacts, 28% of first-time buyers are delaying their house purchases due to the rising cost of living in the UK. With inflation standing at 9.1% as of May 2022, it may come as no surprise that some renters are struggling to become homeowners.

What’s more, rents have steadily increased over time. A report from HomeLet shows rental prices rose by 10.6% in the year to May 2022. So, you may be yielding higher profits each month if you have raised your prices in line with the UK average.

The combination of rising house and rental prices means your tenants might elect to stay in your property longer – plus, if your contracts allow, you may be able to raise the rent. This may provide you with further financial opportunities, acting as a “silver lining” to the cost of living crisis.

  1. Your properties are likely to continue appreciating in value

If you already own a number of properties, you may be relieved to know that the average price of a UK home is still rising. Indeed, despite the challenges presented by the pandemic, and the high inflation we are experiencing in 2022, your properties are likely to continue appreciating in value.

For example, according to the government website, Scottish house prices increased by 8% in the year to March 2022. So, your property investments are likely to have already become more valuable in recent years, and may continue to do so while house prices stay high.

Alternatively, if you are on the cusp of retirement, now could be a good time to explore selling options. In this instance, it could be constructive to work with a professional who can offer guidance on selling properties this year.

The cons of having a buy-to-let business in 2022

  1. Your tenants may struggle to make payments on time

Of course, the Covid-19 pandemic made life very difficult for many people around the UK, making some tenants unable to afford their rent.

According to Simply Business, this meant 14% of landlords lost more than £10,000 as a result of Covid-19, while 47% lost between £2,001 and £10,000. The survey claims that, in response, 25% of landlords dipped into their personal savings to cover costs.

Now, while the peak of the pandemic seems to be over, a new issue has arisen for tenants trying to make ends meet. The price of energy has soared since the start of 2022, after energy regulator Ofgem raised its price cap by 54% in April. What’s more, according to The Money Edit, Ofgem is forecast to lift the cap a further 46% in October.

As a result of these unforeseen circumstances, research from Mortgage Strategy claims almost half of landlords have financially supported their tenants in the year to May 2022.

If you are a landlord, it is important to consider that you may need to financially support tenants during times of crisis – if so, this may call the viability of your buy-to-let business into question.

  1. New rules and regulations could cost you money

There are an increasing number of regulations being placed on landlords, so it is crucial to understand the impact they might have on your buy-to-let business.

For example, before the 2020/21 tax year, landlords were able to claim tax relief on the interest paid on their buy-to-let mortgages at their marginal rate.

So, if you were a higher-rate taxpayer, you would have been able to claim 40% relief on the interest on your buy-to-let mortgage.

However, since April 2020, there is a flat rate of 20% tax relief applied to interest on buy-to-let mortgages. This measure was phased in between the 2017/18 and 2020/21 tax years, and is now fully in place. So, no matter your earnings, you can only claim basic-rate relief.

What’s more, when it comes to the properties themselves, stricter maintenance rules are being enforced.

From 1 April 2023, all buy-to-let properties will be legally required to hold an EPC (Energy Performance Certificate) rating of E or above. Then, from 1 April 2025, your properties will need an EPC rating of C or above to be rented out legally. For more information, read our insights on how the changing EPC laws could affect landlords.

These are just two examples of how maintaining a buy-to-let business could become more expensive as the years go on.

Get in touch

For professional guidance on buying, selling, or maintaining your buy-to-let properties in 2022, contact us today.

Email [email protected] or call 0131 339 2281 to speak to us.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.

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