The typical buy-to-let investor will be lucky to generate annual returns above 2.5% for the next couple of years, according to the latest monthly analysis from property investment specialist BondMason.

The BondMason Private Landlord index also reported that many private landlords could end up making a loss in the next two years on their properties, once costs, tax and their mortgage is taken into account, with a typical buy-to-let landlord likely to make only 2.5% return each year on their investment, and that assumes the UK house prices bounce back following a poor 2018.

By contrast, good returns of 10% p.a.+ continue to be generated by listed corporate residential landlords, whose performances are tracked monthly in the BondMason’s BRIX index (includes listed companies investing in British residential property).

The BondMason BRIX (tracking returns of shares in corporate residential landlords) was up 2.5% in April (compared to March), and 10.7% over the past year (1 May 2018 to 30 April 2019).

The report said part of private landlord’s woes come from the effective tax rate facing them, which has ratcheted up from 8% of their rental income at the start of 2015 to 47% today.  It will go up further to an effective rate as high as 56% next year, when counting the non-deductibility of mortgage interest.

Assuming slightly higher, but still subdued house price growth this year and next (Nationwide’s house price index is up 1.0% in April and 2.8% over last 12 months), the typical buy-to-let landlord will be lucky to generate a return of more than 2.5% this year or next from their investment and all the work involved.

Stephen Findlay, CEO of BondMason, said: “Britain has around 2.5 million private landlords, but we can see this to be a high water mark as the high tax rates that have now kicked in, mean that many landlords will struggle to cover the cost of their mortgage and other expenses, and may only make money by selling their property.

“By contrast to the decline in fortunes of the direct buy-to-let market, there are interesting opportunities for private investors who want exposure to residential property investments through corporate landlords.

“Corporate activity in the private rental sector continues to grow, with the burgeoning build-to-rent market gaining momentum. A number of these companies are now listed on the LSE and AIM stock markets, and provide investors with the investment opportunity to access returns from the underlying buy-to-let property market, without having to buy a property directly.

“However, private investors need to do their research before deciding to invest if they are looking to get exposure to the residential rental property market.  Many listed property companies and funds are weighted towards the commercial property sector and those categorised in the residential sector include housebuilders, which exhibit different characteristics to the corporate landlords.

“So investors have to choose carefully to identify the relatively small but growing number active in the residential rental area.”