The average yield of a buy-to-let property has climbed from 4.9% to 5.8% in the past two years, analysis by specialist lender Octane Capital has revealed.
Rental income has increased by 19% over the last two years, now totalling £15,144 per year.
The initial start-up costs associated with a buy-to-let investment have fallen by -17%, down from a total of £12,037 in 2021-22, to £9,952 today.
However operating costs are up by 18%, rising to £15,592 per year, primarily due to rising mortgage rates.
Jonathan Samuels, chief executive of Octane Capital, said: “The average landlord has benefited from a very healthy level of rental income growth in recent years and so while the level of capital appreciation seen on their property may have cooled, both aspects of their investment are still bringing healthy returns despite the instability of the current market landscape.
“Of course, higher running costs, most notably as a result of higher mortgage rates, have dampened the overall net return they’ve seen. But it’s fair to say that this reduction in net profits has been fairly marginal considering the current economic landscape and the storm of property market uncertainty that we’ve weathered in recent months.
“There are still a great deal of opportunities available that will allow buy-to-let investors to reduce their borrowing costs in the current market and utilising a specialist lender is the best way to secure these.
“It’s important to note that the government’s insistence on making tax digital will add a further cost to consider, although with an initial start up cost of £350 and an ongoing cost of around £110, it’s unlikely to reduce the appetite for investment.
“And while the government is also looking to tempt more landlords away from the sector with their reduction in capital gains tax, our research shows that it remains a profitable endeavour, albeit slightly less so today versus a few years ago.”
The main negative for investors is capital appreciation has fallen by -6% per year to £15,728.
This brings returns down -6% year-on-year to £15,280 on a yearly basis, down from £16,285 per year in capital appreciation and rental income after accounting for the ongoing costs associated with a buy-to-let investment.
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