"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."
- Kate Steere, deputy editor and housing expert at finder.com
Although owning a rental property can be seen as an investment, there are now fears that landlords are fleeing the market, which could lead to a shortage of rental properties.
Comparing the monthly average buy-to-let mortgages, house and rent prices in the UK, the personal finance comparison site 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, totalling £7,312 p.a. But, if they’d taken out the same mortgage in June 2023 average monthly return of £250. This totals to £2,995 p.a. which is 59% less than in 2022.
Rises in the base rate have meant that mortgage rates are soaring in both the buy-to-let and residential market, driving the decline in average buy-to-let returns. Although house prices in the UK fell by 1.6% between September 2022 and June 2023, the average UK house price fell by 1.6%, this 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.
According to the ONS House Price Index, the average UK house price in June 2023 was £287,546 while the average buy-to-let mortgage rate 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.
In Jan-March 2023, buy-to-let mortgage lending in the UK dropped by 40%, from £9.7bn to £5.8bn in the previous quarter. The value of loans granted also dropped by 44% when compared to the same period in 2022, which had buy-to-let mortgage lending at £10.3bn.
The share of homeowner loans granted for buy-to-let purposes was only 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.
Commenting on this analysis, Kate Steere, deputy editor and housing expert at finder.com, has 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.”
