As rental growth slowed in 2023, is buy-to-let still profitable?

March 26, 2024

As property prices and rental yields have steadily increased in recent years, buy-to-let property has often been seen as a useful way to invest your money. However, figures suggest the pace of growth is slowing and landlords face increasing regulation that might mean it’s not as attractive as it once was.

For some people, buy-to-let investments could still be a valuable way to grow their wealth. However, it’s important to be aware of the changing market conditions when you assess if it’s right for you.

Rental yields increased by 7.4% in the year to February 2024

While rental yields are increasing, the pace of growth is slowing, according to the HomeLet rental index report.

According to the figures, in February 2024, the average rent was £1,262 after it increased by 7.4% when compared to a year earlier. This is the slowest annual rate of growth recorded since August 2021.

The monthly changes suggest the pace of growth could be even lower in the months ahead. In February, rent was just 0.2% higher than it was in January 2024. Indeed, average rents fell in 4 out of 12 regions.

The slowing pace comes as many buy-to-let investors will face higher mortgage costs as interest rates rise. So, even if rental prices increase, some landlords could find their profit margins are still squeezed.

House prices increased by 2.5% in the year to January 2024

As well as rental yield, you might plan to sell buy-to-let properties in the future to hopefully deliver a profit.

Again, figures suggest the pace of growth is slowing, and some experts even predict that property prices will fall in 2024.

According to the Halifax House Price Index, the average property in the UK was worth more than £290,000 in January 2024 after it increased by 2.5% over a year. While January marked four consecutive months of house price growth, the report warned that economic uncertainty could continue to subdue prices.

In fact, Lloyds Bank predicts that house prices will fall between 2% and 4% in 2024.

When you take a long-term view, property investments have delivered returns as house prices have risen, even after periods of decline, such as the one that followed the 2008 financial crisis. However, if you plan to buy property to make a profit in the future, remember returns cannot be guaranteed and you could be affected by short-term falls.

A quarter of landlords plan to sell property in 2024

As well as rising mortgage costs, landlords could face higher outgoings due to increased regulation.

A Simply Business survey from October 2023 found that almost a quarter of landlords planned to sell property in 2024. Among these landlords, nearly half cited the prospect of new legislation, such as the Renters’ Reform Bill, as their main reason for contemplating selling.

Two-thirds of buy-to-let investors regard constantly changing and confusing legislation as one of their greatest challenges. In addition, 54% expect landlords to sell up and leave the market as a result of the changes to eviction laws.

So, if you’re thinking about entering the buy-to-let market, it’s not only rental yield and property prices you may want to consider. Understanding legislation and how it’s likely to change in the coming years could also play an important role in your decision.

Buy-to-let could still be right for you

While landlords face some challenges, buy-to-let could still be right for some people. What’s important is that you understand the pros and cons, and how they relate to your situation and the area you plan to buy.

Taking a long-term view and considering how you’d cope if mortgage interest rates remained high for longer than expected, or what you’d do if the average rental yield fell in your local area could be useful.

Do you need a buy-to-let mortgage? Contact us

If you’re interested in pursuing a buy-to-let opportunity and will need to take out a mortgage to do so, we could help.

As mortgage brokers, we may offer guidance about the different options available to you and could help you secure a more competitive interest rate to get the most out of your investment. Please contact us to talk about your mortgage needs.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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

The Financial Conduct Authority does not regulate buy-to-let (pure) and commercial mortgages.

What our clients say

The people we help are at the heart of what we do. Here are some of their testimonials.

I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

Having recently transferred my financial management to Stratton Wealth Management, I have been extremely impressed with the highly professional service I have received. I feel I have been fully involved in all decision making, and the company's highly skilled advisers have shown commitment and patience in any dealings I have had with them. I have also always found them to be easily accessible for any discussion I may require.

Denise Thornton -

A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

Lee and Claire Parkinson -

Clients since 2016

Darius deals with my family’s finances and is a very trusted adviser. We meet a number of times a year, but I know I can call him any time if I have any questions. He is proactive, helpful and friendly!

Jonathan Dennis -

A client since 2019

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

Colin Dunstall, Donaldson Dunstall Solicitors -

A client since 2015