Yearly returns on the average buy-to-let property in the UK were over £4000 lower in June 2023, compared to the same month last year, according to a personal finance site.
The research compared monthly average buy-to-let mortgage rates, house prices and rent prices in the UK to estimate the returns for someone signing up for a new mortgage deal at each point in time.
It found that if a landlord had taken out a two-year fixed-rate buy-to-let mortgage in June 2022, they would get an average monthly return of £609 from rental income after paying interest, totalling £7,312 over a year.
However, if they’d taken out the same mortgage in June 2023, they would get 59 per cent less in average monthly returns at just £250. This totals £2,995 over a year, a significant drop of £4,317 in yearly income.
Successive rises in the base rate have meant that mortgage rates are soaring, in the buy-to-let market as well as the residential market, driving the decline in average buy-to-let returns.
Average UK house prices fell by 1.6 per cent between September 2022 and June 2023, but the drop is not outstripping rate rises. Buy-to-let interest rates are still climbing rapidly and reached an average of 6.18 per cent in July 2023.
While the average UK house price in June 2023 was £287,546 according to the ONS House Price Index, the average buy-to-let mortgage rate for June 2023 was 5.45 per cent.
The rising cost of owning a buy-to-let property has made it far less appealing for landlords to sign up for a new deal.
In January to March 2023, the value of buy-to-let mortgage lending in the UK dropped by 40 per cent to £5.8 billion from £9.7 billion in the previous quarter.
The value of loans granted also dropped by 44 per cent when compared to the same period in 2022, when buy-to-let mortgage lending was £10.3 billion.
The share of homeowner loans granted for buy-to-let purposes was also just 9.8 per cent of total mortgage lending in the first quarter of 2023. This is the lowest share seen since 2011, which suggests that fewer people are looking to invest in buy-to-let properties at the moment.
Kate Steere, deputy editor and housing expert at Finder, says: “We're seeing a trend of landlords pulling out of the buy-to-let market as consecutive base rate hikes have made it unprofitable for them to continue. This will have a worrying impact on an already competitive rental market, leaving renters with fewer options and rising costs as they attempt to navigate the cost of living crisis.”
“Even though we’ve seen house prices start to come down, and 40 per cent of experts from our recent panel believe a housing market crash is on the horizon, any landlords who are coming off a fixed rate now will no doubt be put off by the staggering mortgage rates which are now over 6.0 per cent, compared to less than 2.0 per cent two years ago.”
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