The UK’s buy to let sector has come a long way in the past few decades, growing from a small, niche market into a multi-faceted, lucrative area of the property sector.

Buy to let to is generally accepted as one of the best asset classes around, with returns consistently outpacing stocks, shares, and gold over the past few years. With more than two million private sector investors now owning over £1 trillion worth of homes across the UK, buy to let has become a mainstream consideration for buyers from all around the world.

For people getting started with buy to let property, it is important to establish your objectives before investing.

It is a great idea to seek independent financial advice to determine your budget and long-term financial obligations. Establishing your outgoings including buy to let mortgage repayments, insurance, and management costs for example, will give you a clear overview of how to balance your books.

Buy to let property appeals to first-time investors as it offers the opportunity to secure a monthly rental income and capital growth when they come to sell the asset.

The tangible nature of property and the simplicity of renting out a property for profit is also a draw for first-time investors.

For those starting out with buy to let, contacting a trusted property consultancy like Town Square Invest is a great starting point. Our experienced team can answer your questions and present specifically sourced opportunities to suit your budget and requirements.

Buy to Let Hotspots (UK)

Trends outside the capital in recent times have given investors an insight into just how much regional markets have to offer. In areas such as the north-west, north-east and the Midlands – specifically places like Liverpool, Newcastle and Manchester – buyers can find properties that are considerably cheaper than those available in London, with greater scope for capital growth in the coming years.

Properties with excellent transport connections have traditionally kept their value due to demand from buyers and renters outstripping the supply chain.

Towns in London’s commuter belt including Brentwood have benefitted from a rise in the number of city workers leaving the capital due to the pandemic and taking advance of flexible working. For investors, commuter belt locations with fast access into the capital will offer reliable rental returns and strong growth potential – especially if they are situated on the new Crossrail route.

Interest rates have been historically low for the past decade and in light of the pandemic, the Bank of England cut rates to a record low of 0.1% in March 2020. Rates will inevitably climb over time however, if the last 10 years have taught us anything, any increase will be a slow and steady pace.

Low interest rates are great news for investors looking to purchase property with a buy to let mortgage. With plenty of mortgage products available it is vital you seek independent advice to secure the best deal for your requirements.

Despite the pandemic, UK property values increased by over 10% year-on-year and is showing no signs of slowing down.

If you have been considering investing, now is the time to act. Unlike stocks and shares, property is one of the most stable ways to invest your money, and you will generate a better return than holding it in a bank that offers low interest rates.

Since this guide was written, the UK residential property market has seen significant change. As a result of the cost-of-living crisis and turbulence in the financial markets after the September 2022 mini-Budget, conditions became more challenging for investors. However, the market has remained surprisingly resilient and many indicators now suggest that the outlook may be improving.

Capital Growth

In March 2023, ONS released its January house price index, which showed that the year-on-year rate of growth had slowed to 6.3%. This is slower than during much of 2021 and 2022 but, as many commentators have discussed, this represents a slow readjustment towards longer-term norms. There was no price-crash as some pundits had suggested and instead, the market has continued to be characterised by resilience and a good deal of stability. This is underpinned by an enduring imbalance between intense demand for property and very restricted supply. As a result of this imbalance, many sources expect capital values to return to growth in 2024 and to remain on an upward trajectory thereafter.

Rental Values

Despite the cost-of-living crisis, rental values have grown very quickly, more or less in line with inflation, which was running at just over 10% in the fist quarter of 2023. In March and April, different sources quoted growth rates of between 8% and 11%, with even higher rates in certain towns and cities.

Interest Rates

The Bank of England announced a succession of rises in the Bank Rate in 2022 and 2023. In March 2023, it climbed to 4.25%. However, while the base rate was rising, lenders were actually cutting some of their rates. As the dust settled after the mini-Budget, market competition prompted banks and building societies to introduce more attractive rates. Moreover, in April 2023, the IMF announced that it regarded the current inflationary conditions as a short-term aberration and expected natural interest rates to fall slowly across all developed nations. The forecast, which extends as far as 2050, suggests that investment conditions could improve steadily over the next decade and beyond.