Yearly returns on the average buy-to-let property in the UK were over £4,000 lower in June 2023, compared to the same month last year, according to new research from comparison site finder.com.
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% 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% 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%.
Finder.com argues that 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, the value of buy-to-let mortgage lending in the UK dropped by a significant 40% to £5.8bn from £9.7bn 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 £10.3bn.
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 currently.
