Home Property Average landlord returns drop by 45% since 2020 amid growing rental crisis

Average landlord returns drop by 45% since 2020 amid growing rental crisis

9th Jul 24 4:41 pm

Yearly returns for a landlord taking out a buy-to-let mortgage on the average UK property were over £4,000 lower in April 2024 – a 45% drop – compared to the same month in 2020, according to new analysis by personal finance site Finder.

The research highlights that incentives are still lacking for landlords to invest in rental properties, as high mortgage rates – 4.73% for the average 2-year buy-to-let mortgage (75% LTV) in June 2024 – continue.

These findings come amid concerns that landlords are leaving the market, with rental demand massively outstripping supply. The membership body for property agents, Propertymark, saw 9 new applicants for each available rental property in May 2024, while property website Rightmove reported that the average rent outside of London hit a record high of £1,316 in the same month.

The research by Finder compared 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 2-year fixed-rate buy-to-let mortgage (75% LTV) for the average property worth £230,318 in April 2020, they would have had an average monthly return of £776 from rental income after paying the interest. This would total £9,309 over a year, assuming occupancy every month.

However, if they’d taken out the same mortgage in April 2024 on the average property worth £281,373, they would get 45% less in average monthly returns at just £424. This totals £5,087 over a year, a dramatic drop of £4,221 in rental income per property.

Lending for buy-to-let properties remains low

The value of buy-to-let lending has dropped over the last 2 years, going from £9.7 billion in the last quarter of 2022 to £4.3 billion in the first quarter of 2024. The total value of buy-to-let lending in 2023 (£18.26 billion) was down 56% from 2022 (£41.36 billion).

Between the last quarter of 2022 and the first quarter of 2023, the value of buy-to-let mortgage lending saw a significant drop of 40% from £9.7 billion to £5.8 billion. This came as buy-to-let mortgage rates leapt up throughout 2022.

After the initial drop, buy-to-let lending has remained low, with the value of loans granted down by 25% in the first 3 months of 2024 compared to the first 3 months of 2023.

Liz Edwards, money expert at finder.com, 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.

“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.”

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