• The yearly return on the average buy-to-let property in June 2023 was just £2,995, a drop of 59% from £7,312 in June 2022.
• The average buy-to-let mortgage rate in July 2023 was 6.18% for a 2-year fix, up from an average rate of just 1.86% two years earlier.
• The total value of buy-to-let lending dropped by 40% in one quarter between December 2022 and March 2023.

16 August, 2023, LONDON –

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 new research from personal finance comparison site finder.com.

Owning a rental property can be seen as a good way to boost cash flow, but there are now fears that landlords are fleeing the market, which could lead to a shortage of rental properties.

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 2-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% less in average monthly returns at just £250. This totals £2,995 over a year, a dramatic drop of £4,317 in income.

Buy-to-let mortgage rates have been rising dramatically

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 house prices fell by 1.6% 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% in July 2023.

While the average UK house price in June 2023 was £287,546 according to the ONS House Price Index released today, the average buy-to-let mortgage rate for June 2023 was 5.45%. 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.

Lending for buy-to-let properties has seen a huge decline

In Jan-March 2023, the value of buy-to-let mortgage lending in the UK dropped by a significant 40% to £5.8 billion from £9.7 billion in the previous quarter.

The value of loans granted also dropped by 44% 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% 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.

To see the research in full visit: https://www.finder.com/uk/buy-to-let-statistics

Commenting on the findings, Kate Steere, mortgages expert at finder.com, said:

“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% 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%, compared to less than 2% two years ago.”

Methodology:

Finder took the average monthly house prices according to the ONS house price index and interest rates on a 2-year fixed rate 75% LTV buy-to-let mortgage according to the Bank of England. The mortgage interest rates were then calculated using the Money Helper mortgage calculator. The average UK rent prices were taken from Homelet, and the average interest paid on a mortgage was then subtracted from the average rent to get the returns.