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Many of us dream about the day we can buy an investment property, rent it out, and enjoy the cash rolling in as we sit back and relax. However, with a series of tax raids experienced by buy-to-let investors over the past several years, the question of whether buy-to-let is still worth it in 2021 remains open.

At Black Lion Wealth, we are determined to help you meet your life goals and ensure a stable financial future. In this article, we are going to take a closer look at whether buy-to-let is still a reliable source of income in today’s investment world.

Is Buy-to-Let Worth It? All You Need to Know

There were times when buy-to-let investments were incredibly popular, with many people choosing to refinance their primary residence in order to purchase an additional investment property. But the times are changing, and so do buy-to-let profit margins. Below you will find all the information you need to decide whether buy-to-let is still worth it for you.

The Benefits of Investing in Buy-to-Let

Without a doubt, buy-to-let has much to offer as an investment:

  • Security and capital growth. Of course, a property is an incredibly secure, tangible, long-term asset that beats bank saving rates and rises along with inflation. In addition, a property is still a rather flexible asset, as it can be rented, remortgaged, or lived in.
  • Good tenant demand. As of 2021, there is still an under-supply of housing in the UK, and the housing market is continuing to grow, even though somewhat slower. As good tenant demand is expected to continue, rental yields are expected to remain strong, especially within the key locations.
  • Insurance is available. With buy-to-let, you can take out insurance to cover the potential loss of rental income, legal costs, or damage.
  • Affordable borrowing. Finally, low-interest rates and numerous competitive products available on the mortgage market make borrowing more affordable than ever.

As a regular source of income with the potential for long-term yield from the growth in property value, many people view buy-to-let as a profitable investment opportunity. However, before making an important investment decision, it is important to speak to a professional financial advisor at Black Lion Wealth to see whether any of the alternatives could suit you better.

How Has Buy-to-Let Changed?

With a strong tenant demand and affordable mortgage products, it isn’t surprising that buy-to-let still seems like a worthy investment to many, – but is it really?

Over the recent years, a number of legislative and tax changes have been implemented, impacting the way property investors operate on the market:

  • Increased taxes. Due to the high profit margins associated with buy-to-let, the government has increased taxes for property investors and landlords, which inevitably eat into the profit yield.
  • Less tax relief. As of April 2020, private landlords can no longer deduct mortgage expenses from their buy-to-let income in order to reduce their tax bills. As such, the previous scheme gave higher-rate taxpayers a 40% tax relief on their mortgage interest payments. Instead, they can now receive a tax credit based on 20% of mortgage expenses.
  • Stamp duty surcharge. In 2016, a stamp duty surcharge of 3% was added for investors purchasing additional properties in the UK, including second homes and buy-to-let properties.
  • Stricter legislation. In addition to financial restrictions, there has been an increase in legislation associated with buy-to-let. As such, new electrical standards have been implemented for all privately rented properties, and additional changes are expected to be brought forward later this year.

With tax relief no longer an option, many landlords have seen their profits significantly drop, – especially among the higher rate taxpayers. According to the new rules, buy-to-let owners can no longer receive a 40% tax relief on their mortgage interest payments, so their tax relief has halved. These changes are particularly devastating for landlords with interest-only mortgages in the higher tax rate bracket.

So, Is Buy-to-Let Still Worth It in 2021?

The question of whether buy-to-let is worth it goes beyond the issue of taxes alone:

  • You will still earn rental income. Even though you will likely earn less rental income as compared to previous years, you will still make profits. For example, some areas of the UK see rental yields as high as 8%, while others average at around the 3% mark.
  • You will enjoy capital growth. In addition, while earning rental income, you could also generate capital growth as your property value increases over time.
  • Your property will be more appealing to long-term tenants. Finally, while the additional legislation surrounding new electrical standards isn’t always popular, it continues to professionalize the private rental sector, making it much more appealing for tenants looking for long-term rentals.

All-in-all, the ultimate decision of whether buy-to-let is still worth it in 2021 depends on the ultimate goal of your investment activities and the type of investment you are looking for.

Buy-to-Let Alternatives to Consider

Depending on your investment goals, it may be worth considering other investment alternatives, such as:

  • While shares are considered to be high-risk investments, they can be very rewarding, with a typical long-term return ranging between 8% and 10%.
  • Bonds are loans made by an investor to the government or a large organization, which are repaid at a fixed interest rate, over a set period of time. These present a more low-risk, stable form of investment.
  • Real-estate investment funds. If you are still interested in investing in a real estate market, consider real-estate investment funds. Here, you will pool your funds with others to invest in commercial properties. While the average return is around 10%, keep in mind that your money will be locked away for several years.
  • Peer-to-peer lending. You could offer loans directly to individuals and small businesses through various peer-to-peer (P2P) platforms. While P2P lending comes with higher risks than bonds or cash savings, you can expect higher potential returns as well.

Meet Your Investment Goals with Black Lion Wealth

If you are seriously considering dipping your toes in the water as a landlord and purchasing an investment property, it is absolutely crucial to evaluate all the pros and cons of this financial commitment. While there is no one-size-fits-all answer of whether buy-to-let is still worth it, being armed with the correct knowledge and professional guidance will help you to make an educated decision that will ensure your financial stability in the long term.

Luckily, experienced financial advisors at Black Lion Wealth know all the ins and outs associated with buy-to-let tax and legislation requirements. Together, we will evaluate your personal situation and goals for the future to find the ideal investment solution for you. Contact us today to book a free consultation with one of our investment advisors.