A recent study by Octane Capital has revealed a 6% reduction in the total return of the average BTL property over the past two years. This decline can be attributed to several factors, including heightened mortgage costs and agency fees, alongside a decrease in capital appreciation.

Octane Capital conducted a thorough analysis of the costs associated with being a landlord, encompassing both the initial investment required and ongoing expenditures against the expected total return in the current market environment.

Findings indicate a 17% decrease in the initial start-up costs linked to a BTL investment, plummeting from £12,037 in 2021-22 to £9,952 presently. Despite a 19% surge in tenant finding fees, this decline is primarily attributed to reductions in Stamp Duty and tenancy deposit registration fees.

Nevertheless, ongoing costs for maintaining a BTL investment have surged by 18% over the same period, totalling £15,592 annually. This upswing is chiefly propelled by elevated mortgage rates, with average annual mortgage interest climbing by 25% to £10,210.

Additionally, agency management fees have ascended by 19% annually, accompanied by a 7% increase in costs due to void periods. Despite these rising expenses, average rental income has seen a commendable uptick of 19% over the past two years, now standing at £15,144 annually.

Consequently, the average yield of a BTL property investment has risen from 4.9% to 5.8%. Jonathan Samuels, CEO of Octane Capital, underscored the significance of these findings, stating, "The average landlord has benefited from a very healthy level of rental income growth in recent years."

Samuels acknowledges the impact of higher running costs, particularly due to elevated mortgage rates, on overall net returns. However, he notes that despite marginal reductions in net profits amidst the current economic landscape and property market uncertainties, opportunities exist for investors to mitigate borrowing costs by leveraging specialist lenders.

Concerns are also raised regarding the government's digital tax initiatives, which are anticipated to add further financial burdens. Nevertheless, with an initial start-up cost of £350 and ongoing expenses around £110, the appetite for investment is unlikely to diminish significantly.

Moreover, while the government seeks to incentivize landlords through reductions in Capital Gains Tax, Octane Capital's research emphasizes that buy-to-let investments remain profitable endeavours, albeit slightly less so compared to previous years.