Landlords sell their high-yield properties amid surging mortgage rates

Landlords sell their high-yield properties amid surging mortgage rates

0:05 AM, 21st June 2023, About 10 months ago 4

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Landlords are now scrambling to sell their high-yielding rental properties as rocketing mortgage rates hit profit margins on even the most lucrative investments, the Daily Telegraph reports.

In data provided by Hamptons estate agents, the report reveals that 25% of buy to let properties sold this year have boasted yields of 7% or higher.

That is a significant increase from 19% of BTL homes being sold last year.

With more than one in seven properties sold in 2023 previously classified as buy to let, investors are now rapidly exiting the sector.

‘Interest rates are affecting the profitability of higher-yielding homes’

Aneisha Beveridge, the head of research at Hamptons, told the newspaper: “This reflects how higher interest rates are affecting the profitability of higher-yielding homes, putting more landlords who used to earn healthy returns under pressure.”

However, while the volume of sales remains consistent with last year’s numbers, the types of properties landlords are offloading have notably shifted.

In 2022, just 42% of properties sold by landlords had a rental yield that was below 5%.

This figure has now dropped to 34%, highlighting a big shift in investor focus.

The proportion of landlord sales featuring yields between 5% and 10% has risen from 56% to 63%.

Mortgage rates have experienced a sharp increase in recent weeks

Buy-to-let mortgage rates have experienced a sharp increase in recent weeks, with the average two-year fixed rate reaching 6.21%, up from 5.62% at the end of May, according to data company Moneyfacts.

This rise has significant financial implications for investors, as the annual cost of a typical £150,000 BTL loan on an interest-only basis has surged by £885 in under three weeks.

The situation is even more dramatic for investors nearing the end of their fixed-rate deals, the Telegraph says.

A landlord who secured a two-year fixed rate in June 2021 at an average rate of 2.96% will face a rate that is more than double when refinancing.

Consequently, a typical interest-only borrower can expect their yearly payments to rocket by £4,875.


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Comments

Andrew Dove

8:11 AM, 21st June 2023, About 10 months ago

Even high yielding properties do not make sense for most landlords with high levels of debt in their own name. Today you need to have exceptionally high yielding properties, a great tax situation or some other key advantage, otherwise upon refinancing negative cashflow awaits.
It is worth checking out your situation by plugging numbers into https://rentyieldcalculator.co.uk/

GlanACC

9:03 AM, 21st June 2023, About 10 months ago

If your property is loss making or low margin and you do not have other means to subsidide it for the next few years (I have been there and subsidised 12 properties for 3 years from earnings from another business) then don't delay sell today. If you can afford to subsidise it, its probably worth sticking it out.

Christopher Lee

15:20 PM, 25th June 2023, About 10 months ago

Of course, the correct way of thinking about this is to say prices have fallen and so the yield is higher or to say investors are demanding to purchase at a better yield.

The real question is why are some people still buying at below a 7% yield?

Crouchender

17:45 PM, 25th June 2023, About 10 months ago

They still believe there will be capital growth. Which is true...

Net Migration 600,000 pa
More smaller households (divorcees/ older single people/couples can only afford 2 bed places as opposed the 3 beds (20years ago).

Property prices face minor correction next 1-2 years then back up again.

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