With UK inflation on the rise, regular interest rate hikes, and questions around house prices, many investors (both existing and would-be) are questioning "Is buy to let a good investment?" and are looking for the right reasons to invest. The UK property market is shifting and it is important to understand whether investing in it is the correct decision for you.
At GetGround, we believe it could be. Here are five reasons why:
1. Regular source of income
Whether you’re planning for retirement, or simply keen to make your money work harder, an investment in buy-to-let can be a great regular source of income for years to come. The average UK rental yield was about 5.4% in 2024, but can be higher in regional areas such as Liverpool, Birmingham and Manchester, at times even hitting double figures. That means there are still impressive rental returns to be found in the UK market. VeriSmart's analysis predicts that renters will outnumber homeowners by 2039 in the UK. So UK property investment doesn’t just have the potential for short-term income – it looks set to offer regular returns in the long term, too.
2. Capital growth
At the same time as regular returns, buy-to-let investments also benefit from capital growth – the potential for your property’s value to increase over time.
In the past five years, UK properties have increased at over 5% annually. Seeing as the average landlord owns a buy-to-let investment for roughly eight years, that’s a considerable chunk of capital growth when you come to sell.
3. Recession-ready
Property isn’t like any other asset, because it’s a basic need. In difficult economic environments, people still need a roof over their heads, which means demand from renters tends to remain high. And, with the cost of living rising, many are delaying their intent to purchase a home themselves. This only further increases the demand for high-quality rental properties.
This brings us back to the point around stable income. Rent is always due, regardless of a recession, which makes buy-to-let investments a relatively stable and predictable earner even during the tougher times.
In fact, looking to past recessions, buy-to-let has often weathered them particularly well. Consider the recession that followed the financial crash in 2008, for example. After just two years of decline, UK buy-to-let had rebounded and recovered its value.
This kind of stability and downside protection is fairly unique to property – other asset classes, like stocks or bonds, tend to be much more volatile.
4. High demand (and rising!)
The UK needs about 300,000 new homes each year, just to meet demand. But the latest data suggests that supply rarely tops 200,000 – especially since the Covid 19 pandemic. In fact, in the year to December 2021, just 175,000 houses were built.
Such undersupply means that there’s huge demand for rental properties, making it more likely you’ll fill a buy-to-let investment quickly, and keep untenanted periods to a minimum. High demand also means UK rents are rising – in the year to July 2022, they rose 3.2%.
This level of demand — especially in major cities like London — also means landlords are getting their properties tenanted quickly. In fact, Hamptons estimates the average time-to-let today at just under nine days – the lowest it’s been since they began recording data in 2013. This means landlords and investors can start enjoying rental income quickly.
5. A guard against inflation
The UK saw its highest inflation rate in decades in 2022 at 11.1%, although we have seen inflation drop since then it is still important to be aware that rates can change and how this might impact your investment decisions. There are a few reasons why buy-to-let investments can be great hedges against high inflation.
Firstly, property prices tend to rise with inflation. ONS Housing data shows that UK house prices increased by 3.3% year-on-year in November 2024, this growth in property prices is larger than the 2.5% inflation rate seen in December 2024. And of course, you get your rental income on top of this, too.
This brings us to another point – rental income also rises with inflation. In Manchester, for example, rents are up by about 11% in the past year. In London, rents are 15.8% higher than last year on average.
And lastly, your mortgage will depreciate in value over time. Inflation essentially means that £1,000 today is worth less than £1,000 last year. So, if your monthly mortgage payment is £1,000 on a long-term, fixed-rate mortgage, the value of that payment will decrease in real terms – especially in high inflation periods.
All this adds up to make buy-to-let a robust asset during high-inflation periods. This explains why, in our 2022 inflation survey — when inflation rates were peaking — just 2.5% of landlords plan to divest all their property. Meanwhile, almost half plan to invest in new property because of rising inflation.
UK buy-to-let: still a sound investment
With so many assets out there for you to choose from, it’s always worth investigating whether UK buy-to-let is right for you. But, as you can see, there’s a good chance a high-yield, high-quality property will continue to act as a great investment for years to come – even during times of high inflation. You also have the option to decide between many different types of rental properties — such as HMO properties and holiday let investments — to see which ones best fit your investment goals and to assist in improving your returns.
The key to it all is finding the location and property that match your goals, budget, and circumstances. At GetGround, we can help with that.
This is for your information only – you shouldn't view this as legal advice, tax advice, investment advice, or any advice at all. While we've tried to make sure this information is accurate and up to date, things can change, so it shouldn't be viewed as totally comprehensive. GetGround always recommends you seek out independent advice before making any investment decisions.
