"In spite of rising costs, there are still healthy returns to be found in property for committed investors."
Long-term property investment will still deliver significant returns for landlords despite recent regulatory and taxation changes, according to Kent Reliance.
Its analysis shows that a typical landlord would see an estimated net profit of over £265,500 per property over the next 25 years through rental income and capital gains.
Accounting for the impact of inflation over the period, this represents a profit of £162,000 in today’s money, or £6,475 every year.
Assuming that house prices and rents rise in real-terms by 1% per year - well below their performance over the last 20 years - over the 25 year period, this would mean an average buy-to-let property would grow in value to nearly £516,000, providing gross capital gains of £269,464.
Additionally, a typical landlord receives rent of £10,134 per year per property, based on current yields, and accounting for void periods, each year. Over the course of a 25 year period, a typical property would generate a total rental income of £369,495. Based on this, even if a landlord did not sell their property, making no capital gains, income alone would not only cover outgoings, it would provide a profit of over £65,500.
However the calculations also show that long-term costs of property investment amount to £373,000 over 25 years, equivalent to 58% of the total income and capital gains a landlord would enjoy.
Over 25 years, the typical basic-rate landlord will contribute approximately £99,600 per property: over £60,000 in capital gains tax, £29,000 in income tax, and nearly £10,000 in stamp duty.
For higher rate tax-payers, the burden is heavier still following the recent changes. They can expect to pay three times as much income tax as basic-rate landlords – nearly £88,000. Under the previous tax regime, this would have been around £58,600, meaning their income tax bill over 25 years has increased by 50% following the 2015 Budget changes. Higher tax bills see their overall return reduced to £203,000 over the period, a quarter less than their basic-rate peers.
Mortgage finance costs are the largest cost for a typical landlord, at a total of £157,000, followed by a further £72,000 in the maintenance and running costs of a property, excluding any improvements. The research also factors in an opportunity cost of over £34,000, the return an investor could have made from long-term savings instead.
John Eastgate, sales and marketing director of OneSavings Bank, commented: “The buy-to-let market is undergoing a sea change. Regulatory and taxation changes have altered the market dynamic, reducing its attractiveness to amateur landlords, and increasing the tax bills of higher-rate investors. In spite of rising costs, there are still healthy returns to be found in property for committed investors.
“However the days of speculation are gone. It is a long-term business endeavour, requiring commitment and expertise. Investors must be prepared to undertake business and tax planning, understand the risks as well as the rewards, and, most importantly, the responsibilities they have towards their tenants.
“Policy change remains a threat, however it is essential that the role of professional landlords in providing vital housing stock is not undermined. Without them, the supply of housing in the sector would naturally shrink, leading to higher rents for a growing number of tenants competing for accommodation.”