Is it still worth investing in a buy to let property in 2022?

Is buy to let still worthwile in 2022? Short answer Yes, but get your strategy and location straight before diving in. Plus, the ten postcodes where you can make the most profit

Buy-to-let boomed along with the rest of the property market last year; now banks are gearing up for the momentum to pick up this year. So is now the time to consider becoming a landlord?

In 2021 buy-to-let investors borrowed a record £18 billion, according to UK Finance, the body that represents mortgage lenders — an 83 per cent increase on the previous year. What is more, 34 per cent of landlords in the UK are planning to buy at least one more property within the next 12 months, according to research from Shawbrook Bank.

Meanwhile, banks are doing all they can to attract landlords in 2022: interest rates on buy-to-let mortgages are low (Mortgage Works, Nationwide’s buy-to-let arm, has a two-year fixed deal at 0.99 per cent) and several lenders are offering higher than usual loan-to-value (LTV) deals, including TSB, which has an 80 per cent LTV mortgage.

Buy-to-let mortgages can be confusing, though, and this is why it’s worth speaking to a broker instead of opting for a specific bank. You can also check out the potential costs and how much you might be able to borrow (and afford) by using a mortgage calculator. Use this calculator to make sure being a landlord will work financially for you.

Others, such as NatWest, have recently removed the minimum income requirement for buy-to-let applicants. Many lenders had previously insisted that landlords must earn at least £25,000, aside from rent, which made it impossible for some in retirement to take out a loan.

“The changes in the buy-to-let lending market are indicative of the confidence that lenders have in this space and the scope that they believe they have for growth,” says Chris Sykes, a mortgage consultant at the brokerage Private Finance.

Rents outside London have also been increasing. “Across Great Britain rents have risen 7.9 per cent over the last year [to November]. A lack of stock and a continuation in tenants’ willingness to pay for more space has fuelled growth. In particular this has benefited southern regions [outside London], which have seen the biggest rent rises since the pandemic began.”

There still good yields to be had too. Analysis of 1,350 postcodes by Track Capital, a property investment company, shows that the top place to invest in 2022 is Nottingham, along with buy-to-let hotspots Manchester and Newcastle. The only place in southern England in the top ten is Southampton.

There are, admittedly, hurdles. About half of Britain’s landlords are said to be considering selling rather than upgrading properties to meet the government’s energy efficiency targets (new rental properties need to have an EPC rating of C by 2025 and existing tenancies the same by 2028), according to a survey by Mortgage Works.

It is the latest in a series of financial and regulatory disincentives that have dented the private rental market since the chancellor at the time George Osborne slapped a 3 per cent additional stamp duty levy on buy-to-let investors in April 2016.

In the past year the number of rental properties in Britain fell by 17,150 as investors sold 201,300 homes, a figure only partially offset by the 184,100 homes purchased by landlords — the highest number bought by landlords in the past decade, according to Hamptons.

“We would expect the percentage of homes bought by investors to remain around 12 per cent, perhaps even fall a little in 2022, since the changes to EPC regulations will limit the types of homes investors will buy. On the flip side there are still investors who have racked up savings and will be looking for ways to protect their money against inflation and rising interest rates.”

We asked landlords who all plan to expand their portfolios in 2022 what tips they had for those looking to buy-to-let this year.

Stay local
Surveys may show the highest yields are miles away, but experienced landlords urge investors to stick to what they know. “The problem is if you invest in an area that you don’t know you can end up making bad decisions,” .

Nottingham might offer good yields, but if you don’t know the good areas from the bad you could end up making a bad decision. One street might be an excellent investment, but the very next street not so, you need that local knowledge.”

“Ideally, given what I know now, I would have properties within an hour’s circumference of where I live. The challenge for me is that I have built up relationships with a lot of good people locally: builders, letting agents, surveyors and those relationships take a good couple of years to build.”

Decide on your strategy
“My investment strategy is to stay fairly local geographically, choose something I can manage myself and that is freehold. I look for two to three-bedroom family homes and a return on investment of at least 4 per cent. Family homes offer a stable and fairly passive [low-maintenance] investment strategy,”

“I have HMOs [houses in multiple occupation] where the objective is cash flow, and single flats where capital appreciation is the objective.”

Get specialist advice
“My top tip? Take your time, don’t rush; this is going to be a long-term investment and you need to make sure you check your financial forecasts carefully. There are lots of rules and regulations around letting, so either you put in the time to learn them or use a letting agent to help you — at least to start with,”

Join a local Property Investors Network (PIN), where you can meet other landlords locally.

Think long-term
“I have had one tenant, a retired architect, for four to five years,”. “He is very happy there and says he’d like to buy it, if I sell. He is a single person with no children or animals, which is very good. I’m not greedy and the rent is lower than similar places. In four to five years years I have only put the rent up by £60, but I am happy and he is happy. It is better than lots of different tenants coming and going.”

Be flexible
“Student numbers have been falling over the past five years, so those properties within two miles of the university I still rent to students, but those further out I have started dressing up and renting to postgrads and young professionals, and getting higher rental rates into my portfolio,”

Plan ahead
“Things always take longer and cost more than you expect,”. “Just budget for that, plan for voids and build it into your cash flow forecasting. Run each property as its own business unit and be very clear on the profit and loss.”
You also need to plan for the unexpected. Lordan had one group of students who “absolutely trashed the place, it was knee-deep in waste and you couldn’t even see the kitchen counter tops”.

Do it yourself
“I have a one-bedroom buy-to-let flat close to where I live that is important to me because I am the kind of person who wants to do most of the minor repairs and DIY myself. It saves me getting tradesmen and I don’t want to employ a management agency’.

Or don’t
“I definitely do not want to manage them myself and I always have more than one letting agent,” Kadri says. “The quality of the service can go up and down. If you have more than one then you can move agent, plus they compete with one another to gain your favour.”

Stay positive
“You’d probably think now is not a good time to buy a buy-to-let because the market is so hot, but I am open to buying and holding property regardless of the costs,”. “Property prices have literally spiked in the past four months, but it creates an opportunity for me to release equity and invest without digging into my savings. Do not hesitate to remortgage your own property to invest in another place, just take the plunge and do it. Your first deal probably isn’t going to be your best deal, but it will give you a better return on your money than the bank.”

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