Rising interest rates hammer BTL returns by 45%

Rising interest rates hammer BTL returns by 45%

9:42 AM, 11th July 2024, About A week ago 13

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New research reveals a huge decline in profits for buy to let landlords in the UK, raising concerns about a worsening rental crisis.

According to a study by Finder, a personal finance website, annual returns for landlords taking out new BTL mortgages have dropped by a staggering 45% compared to April 2020.

This dramatic fall is, the platform says, down to soaring mortgage rates, which currently stand at 4.73% for the average two-year buy to let product (at 75% LTV).

The findings underline growing concerns about a shrinking pool of rental properties as landlords increasingly leave the private rented sector (PRS).

‘Buy to let market has been stagnating’

Liz Edwards, a money expert at the firm, said: “The buy to let market has been stagnating over the past couple of years as rising interest rates have made it less profitable for landlords.

“We are now seeing the worrying effects this is having on an already competitive rental market, leaving renters with fewer options and pushing prices higher and higher.”

She added: “Record high UK rent inflation of 9.2% was seen in March this year and, while this is slowly beginning to ease, it remains worryingly high.

“This new government needs to tackle the rental crisis head-on as rents continue to climb and the number of available rental properties remains well below what is needed to meet demand.”

Estimate a landlord’s potential returns

The research by Finder compared historical buy to let mortgage rates, house prices and rental income to estimate a landlord’s potential returns.

The analysis revealed that a landlord who secured a two-year fixed-rate BTL mortgage in April 2020 for the average property – worth £230,318 – could expect a monthly return of £776 after covering mortgage interest.

This equates to a total annual return of £9,309, assuming full occupancy.

A landlord entering the market

However, for a landlord entering the market in April this year with a mortgage on the average property – now valued at £281,373 – the picture looks much bleaker.

Monthly returns have shrunk by 45%, averaging just £424, resulting in a total annual return of £5,087.

This represents a significant decline of £4,221 in potential rental income per property each year.

Plummeting value of buy to let lending

Finder says the impact of these trends is evident in the plummeting value of buy to let lending with a 56% drop in total lending value from 2022 (£41.36 billion) to 2023 (£18.26 billion).

This decline began in late 2022 with a 40% decrease in lending value between the last quarter of that year and the first quarter of 2023.

While lending activity has stabilised, the first quarter of 2024 still saw a 25% reduction compared to the same period in 2023.


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TrevL

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15:21 PM, 11th July 2024, About A week ago

Meanwhile my active stock portfolio has returned 50% in the last 1.5 years, and my indexed etf just over 30%. And I don't have to deal with any Tennants, councils or generation rent.

NewYorkie

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15:53 PM, 11th July 2024, About A week ago

Reply to the comment left by TrevL at 11/07/2024 - 15:21
Brilliant. Not that sort of performance but I'm not complaining. Probably makes us prime targets for Labour.

Ann Lewisohn

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17:43 PM, 11th July 2024, About A week ago

I have 2 mortgages with rental income way below my remortgaged rates making losses of thousands per month when adding the service charges. There is a limit on what tenants will and an afford to pay. Trying to sell.

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