Back in 2014, Claire Hancott and her husband, Simon, ate baked beans on toast for three weeks straight to afford their first buy-to-let property.
Nearly a decade on, they have 12 properties in their rental portfolio and are in the process of buying another four — just at the point when other landlords are fleeing the market.
“My husband already owned a townhouse when we met in 2011,” said Ms Hancott, 34. “When we bought a house together three years later, we decided we would scrimp and save for a deposit so we could keep the townhouse and rent it out.
“This was our first rental property. Now, we consider our property portfolio to be our pension.”
The Hancotts have been slowly expanding their portfolio over the last nine years. They always buy a property with the maximum mortgage they can get. Then, when they remortgage, they take out as much equity as possible and use this money to buy more properties.
Ms Hancott said that many of their properties did not actually make them any money on a month-to-month basis, particularly since mortgage rates have increased on some of the houses they rent out.
The mortgages have jumped from about £750 to £1,900 on some of their properties, and they now lose about £2,000 a year on certain parts of their portfolio. They are swallowing most of the increase themselves as they do not want to increase rents and lose good tenants.
Ms Hancott said: “We typically only make a few hundred pounds a month per property. That means that one boiler repair, or one month without a tenant can wipe out our profit for the entire year.
“What little profit we do make then goes back into maintaining the properties, such as new carpets or new bathrooms so that they are of a good standard for the tenants. This has become increasingly difficult as profits have been squeezed.”
Higher mortgage rates are one of the reasons some landlords are leaving the market. According to a survey from Simply Business, around a quarter of landlords are planning to sell a property over the next 12 months, and almost one in 10 have sold a property in the last year. Just 3 per cent are planning to buy.
Over the past two years, the Bank of England has gradually increased the base rate from 0.1 per cent to 5.25 per cent today as it tries to lower inflation.
This feeds through to the interest rate that you pay on your mortgage. The average two-year buy-to-let mortgage is now 6 per cent, compared to 2.9 per cent two years ago and 3.06 per cent five years ago, according to the data company Moneyfacts.
Why, then, are the Hancotts keen to expand into the rental market even further? Ms Hancott said it was because they were not buying the property to benefit from rental income. Instead, they believe there is “significant money to be made in the long-term”.
“The average price of a property in the UK once inflation is taken into account is back to the same average house price we saw in 2003. Therefore we strongly believe UK property is undervalued and will catch up at some point,” said Ms Hancott, who is an accountant and runs a business called Profit Cash Growth.
“When interest rates fall, property will again become affordable for many to buy and this will increase prices once more.”
Ms Hancott added that her husband, who owns an estate agency, regularly talks to landlords who want to sell up. She said this meant that there were plenty of sellers out there eager to sell quickly, and therefore there would be good deals to be had.
“The landlords also often want to sell the property with the tenant in, which is good for us as it means we don’t have a void period and good for the tenant as they don’t need to move out,” she said.
On top of rising rates, landlords say that a string of tax and regulatory changes has made it increasingly difficult to make a profit or, in some cases, stay afloat.
Before 2016, landlords could deduct their mortgage payments from their rental income before they paid tax. For example, if you made £15,000 in rental income but paid £10,000 in mortgage costs, you would only pay tax on £5,000.
Now, landlords are unable to deduct their mortgage expenses and instead get a “tax credit” based on 20 per cent of their mortgage interest payments. It means that any landlords who are higher- or top-rate taxpayers pay significantly more tax on their rental income.
For this reason, Ms Hancott and her husband now solely buy their properties through a limited company.
This means that instead of their rental income being taxed as income (20, 40 or 45 per cent depending on your tax bracket), they will pay corporation tax (19 or 25 per cent depending on the business) on the profits made by their company.
The Hancotts are sticking to their plan despite the headwinds. They aim to spend the next 10 years remortgaging the properties and releasing equity to buy more properties, but will then switch to slowly paying down the mortgages with any profits they make.
By the time they are 65, they hope to own 40 properties mortgage-free, and live off this in retirement.
“The housing market is a safe place for your money to be in the long term versus other investments like the stock market or bitcoin,” Ms Hancott said. “Despite what people say, historically house prices have gone up, despite the Spanish flu and two world wars — so why would Covid or new wars change this?”
