Is being a UK landlord still a way to make a profit?

Written by C Wolsey

Being a UK landlord isn’t as easy as it is made out to be. It has become harder still in the past couple of years with changes to rules, licensing, and tax reliefs. Of course, the last year has been even more challenging than normal. However, landlords that have gotten through the drama have come out the other side stronger and better able to withstand unpredictable problems in the future. 

Is being a UK landlord still a good way to generate profits? Does it also provide meaningful diversification away from other investments to protect against the potential of a future declining stock market? In this article, we reassess the situation from multiple angles. 

Tax Relief on Mortgage Interest Is No More

The gradual phasing out of tax relief for mortgage interest created shock waves in 2017. As things stand today, just 20 percent of expenses relating to the mortgage can be deducted from rental income. The situation cuts down on the potential profit for landlords. However, because profits are generated in a variety of ways including cash flow from tenants and potential uplift in property values, it’s only a small thing. 

Allowing Enough for Repairs, Maintenance, and Vacancies

Over 80 percent of landlords in the UK are private individuals and do not operate through a limited company or a public one. The majority also makes less than £20,000 from their endeavour each year mainly because the average landlord does not have a large portfolio of properties. 

To be realistic about potential profit levels and to avoid missing financial targets, assessing what’s fair to set aside for repairs and maintenance is especially important. Most newer landlords underestimate these areas and forecast overly generous, impractical returns. 

Furthermore, adjusting the vacancy level based on what has been typical or talking to other landlords to gauge how they’re fairing provides a reasonable guide. While recent times have not been typical, an expectation of an overly high occupancy level can lead to disappointment. 

Keep Landlord Insurance Affordable

Newer landlords don’t always shop around for the best rates for landlord insurance. Sometimes, they don’t find an affordable insurer and just go with the first one they find. Other times, they’re just so overwhelmed with the long list of action steps to take to reach the point of having their first tenant that negotiating the best prices gets skipped. However, the team at can check around with the best insurers to seek the right quote for your situation. That’s true whether you have a single property or several in a growing portfolio. You can learn more about landlord insurance from their website. 

Does Being a Landlord Offer Diversification Benefits?

Investing in residential property and renting it out as a landlord is something that doesn’t appeal to everyone. Yet, for many, they prefer the hands-on nature of owning bricks and mortar rather than purely paper assets like stocks or fixed income. 

How Do Returns Fair Between UK Stocks and UK Homes?

In an analysis of comparative returns from 1995 to early 2018, the UK stock market provided 7.76% annualised return versus 6.32% annualised for home price rises, but that’s not the whole story. For property owners, they have the cost of ownership to manage. Also, buy-to-let investor landlords have higher levels of wear and tear, and other expenses. However, there is often some cash flow upside when including net rents from tenants. This makes the return far more competitive. 

Does Owning Property Diversify Away from Stocks?

The reality with UK homes is that they’re not always highly correlated to real property. While UK REITs can own properties and their stock price may track the UK small-cap market, independently owned property moves largely independent of the stock market. Therefore, for investors wanting to have some diversification away from the frothy stock market sitting at high valuation levels, direct ownership of property is an effective way to do that. 

Should Investors Stick with Being a Landlord?

While the potential return is one factor, many people like owning property. It’s real, tangible, and feels like it cannot be taken away by a stock market crash. However, for those who dislike being a landlord, that’s unlikely to change in the future. In which case, it makes sense to look elsewhere. 

For people who wish to stick with it, the demand for property is likely to remain sustainable due to considerable housing shortages across the UK, and it’s unlikely that home prices will decline steeply in the future too. The market, while cyclical, tends to follow supply and demand indicators.

So, even when some people have moved back home or to share a property instead of renting a flat or house just for themselves, that situation won’t last forever. As their job prospects and the economy continues its recent upturn, the prospect for landlords improves as it does for the people who rent from them.