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Landlord earnings fall sharply as rental market struggles

Landlords with an average buy-to-let mortgage are seeing their annual earnings drop by over £4,000 per property compared to 2020, primarily due to rising interest rates.

Record high rents amid soaring demand
Rents have surged to unprecedented levels as the demand for rental properties far exceeds the supply, with approximately nine applicants for each available property. The total value of buy-to-let lending in 2023 stood at £18.26 billion, a 56% decrease from 2022’s £41.36 billion.

Impact on landlords and renters
As of April 2024, landlords taking out a buy-to-let mortgage on an average UK property experienced a 45% reduction in yearly returns compared to April 2020, according to new analysis by personal finance site Finder.

“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,” said Liz Edwards, a money expert at Finder.

Finder’s research compared average buy-to-let mortgage rates, house prices, and rent prices in the UK to estimate returns for new mortgage deals. If a landlord had taken out a 2-year fixed-rate buy-to-let mortgage (75% LTV) for an average property worth £230,318 in April 2020, their average monthly return from rental income would have been £776 after interest payments, totaling £9,309 annually. In contrast, the same mortgage in April 2024 for a property worth £281,373 would yield only £424 monthly, or £5,087 annually—a substantial drop of £4,221 per property.

Decline in buy-to-let lending
The value of buy-to-let lending has significantly decreased over the past two years. It dropped 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 was down 56% compared to 2022.

“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,” added Edwards.

Methodology and sources
Finder’s analysis utilised average monthly house prices from the ONS house price index and interest rates on a 2-year fixed rate 75% LTV buy-to-let mortgage according to the Bank of England. Calculations were based on interest-only mortgages. Average UK rent prices were also taken from ONS, with mortgage interest payments subtracted from average rent received to determine returns. The figures on buy-to-let lending were sourced from the FCA, and rent inflation figures were obtained from the ONS.