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Landlords abandon property investment for improved savings rates

Landlords
Landlords

Growing numbers of investors are ditching their buy-to-let properties for savings bonds.

Years of rock-bottom interest rates drove a boom in the buy-to-let sector as it was near impossible for savers to get a decent return by leaving their money in the bank. But this is now changing.

Even landlords who have paid off their mortgages are being hit with burdensome regulatory changes that are squeezing their profits, increasing the appeal of other investments.

At the same time, savings rates are soaring. The top one-year bond pays 4.33pc, up from 1.36pc a year ago, according to the analyst Savings Champion. The highest rate on a three-year bond has risen from 1.85pc to 4.51pc during the same period.

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These returns can outpace rental yields in some areas, particularly in London, where they are below 3.53pc in some areas, according to IMMO, which manages and invests in rental properties.

Landlords in Westminster earn just 2.19pc on average, while in St Albans in Hertfordshire they make 3.29pc.

Chris Norris, of the National Residential Landlords Association, said some landlords are noticing that their yields are comparable to what they could earn from high street banks.

He said: “It’s not uncommon to be making 4 or 4.5pc.”

RBC Brewin Dolphin, one of Britain’s biggest wealth managers, said it has seen a rise in clients selling their buy-to-let properties and investing the proceeds in savings bonds.

Evelyn Partners, another large wealth manager, also said it is seeing clients conclude that buy-to-let properties are “too much hassle”.

Rob Burgeman, an investment manager at RBC Brewin Dolphin, said forthcoming changes in capital gains tax were making this a good time for some landlords to exit the market. The capital gains tax allowance will fall from £12,300 to £6,000 in April 2023 before being halved again in April 2024.

Higher mortgage costs and Government proposals that would require newly-rented properties to have an Energy Performance Certificate rating of C or above by 2025 are only adding to the list of drawbacks for landlords, as returns on bonds become more attractive.

Jason Hollands, of Evelyn Partners, said tax changes by previous Governments have also made buy-to-let less enticing.

Landlords have lost allowances for wear and tear expenses and those who own properties in their own names no longer get tax relief on mortgage interest payments. Even those that have incorporated saw their tax relief on interest payments fall from 45pc to 20pc in 2020.

Mr Hollands said a gloomy outlook for house prices over the next two years means that those looking to get out of the market could be better off doing so sooner rather than later.

One landlord, who asked not to be named, sold two of her buy-to-let properties in Kent and Wales because she is worried about Government proposals to ban no-fault evictions and require landlords to accept pets.

She has previously been burned by problem tenants and damage caused by animals.

After selling the homes in 2020 and 2022, she has put most of the funds into a one-year savings bond that pays 4.6pc a year. The returns she previously made on a £300,000 investment with no mortgage were £5,000 a year.

The same amount of money in a bond at 4.6pc now yields £13,800. She has also used money to buy annuities paying 7.5pc a year.

The landlord, who is in her 50s and lives in London, described putting the money into bonds and annuities as a “no-brainer” with none of the “24/7 faff” of being a landlord. “Thank God for increased interest rates for savers,” she said.

Although properties tend to increase in value over the long-term, she said this would not be the case if she got stuck with tenants who wrecked her properties.

She owns another five properties with no mortgages that she is keeping for now because she has good tenants.


Have you ditched your buy-to-let properties for savings bonds? Or thought about it? Share your experiences and join the conversation in the comments section below