Buy-to-let returns fall 59% amid higher mortgage rates

Buy-to-let returns are slumping as the cost of borrowing spirals.

Property for rent in a London street
The average buy-to-let mortgage rate for June was 5.45% and hit 6.18% in July.
(Image credit: Getty Images)

Investors are set to make £4,317 less on average from buy-to-let (BTL) property this year compared to 2022 as spiralling mortgage rates take a chunk out of their income.  

A buy-to-let landlord taking out a two-year fixed rate buy-to-let mortgage in June 2023 could expect returns of £2,995 a year, research from personal finance comparison site shows.

However, a landlord who took out the same mortgage in June 2022 would earn an average of £609 per month, or £7,312 over a year.

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This means that in only 12 months, the potential returns from buy-to-let property for new investors have fallen 59% on average, equivalent to £4,317 in yearly income.

Borrowing costs hit landlords

The main reason for this decline in landlord income is the rising cost of borrowing which has pushed up mortgage rates for both residential and BTL borrowers.

Buy-to-let interest rates are still climbing and reached an average of 6.18% in July 2023.

In the first three months of 2023, the value of buy-to-let mortgage lending in the UK dropped by 40% to £5.8bn from £9.7bn in the previous quarter.

The value of loans granted also tumbled 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 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. 

Kate Steere, deputy editor and housing expert, says this fall in profitability is leading to a “trend of landlords pulling out of the buy-to-let market”.

“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,” Steere adds.

Landlords are now selling

A separate report by estate agent Savills estimates that 25,000 homes in the UK were sold by landlords between April and May, compared with 22,000 in the previous two months.

According to the ONS House Price Index, the average UK house price in June 2023 was £288,000 while the average buy-to-let mortgage rate was 5.45%.

The research by compared monthly average buy-to-let mortgage rates, house prices and rent prices in the UK to estimate the return and reported that for someone signing up for a new mortgage deal at each point in time.

Pedro Gonçalves

Pedro Gonçalves is a finance reporter with experience covering investment, banks, fintech and wealth management. He has previously worked for Yahoo Finance UK, Investment Week, and national news publications in Portugal.