High mortgage rates have meant that new buy-to-let purchases are increasingly being funded by cash rather than a mortgage.
So far this year, 59% of buy-to-let purchases in Great Britain were mortgage free, the highest share in six years and up from 53% in 2022.
“The biggest shift has come in Southern areas of the country, where yields tend to be lower. So far this year a record 61% of investor purchases in the four Southern regions (London, South East, South West and East of England) were made in cash, up from a low of 47% in 2022,” according to Aneisha Beveridge, head of research at estate agents Hamptons, which compiled the data.
In contrast in the North of England, cash purchases have fallen year-on-year, from 62% in 2022 to 60% in 2023.
This means that for the first time since our records began, a landlord buying in the South of England is more likely to be a cash buyer than an investor buying in the North where prices are lower.
This shift is being driven by today’s higher interest rate environment. Higher interest rates make it harder for the buy-to-let sums to stack up, particularly in low-yielding areas of the country that generate smaller rental returns.
Furthermore, it’s these low yielding areas, particularly in the South, where investors may find it difficult to pass a lenders’ stress test and explains why more are turning to cash.
The average landlord who bought a buy-to-let in the South of England during the past 12 months achieved a 5.4% gross yield, lower than some mortgage rates, compared to 7.5% for those who bought in the North.
Rental growth accelerated in February to a ten-month high, with the average rent on a newly let property in Great Britain up 10.0% year-on-year.
