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.