Yearly returns on the average buy-to-let property in the UK were over £4,000 lower in June 2023 compared to the same time last year.
Research from Finder.com found a landlord that had taken out a two-year fixed rate buy-to-let mortgage in June 2023 could expect returns of £2,995 a year.
This was £4,317 less than the £7,312 a year returns the same mortgage would have produced if it was taken out in June 2022.
This yearly change was driven by a 59 per cent difference in monthly returns, decreasing from £609 to £250.
Finder.com deputy editor and housing expert, Kate Steere, said this fall in profitability is leading to a “trend of landlords pulling out of the buy-to-let market”.
Steere attributed this to consecutive base rate hikes.
Additionally, the research revealed that, between January and March this year, the value of buy-to-let mortgage lending in the UK dropped by 40 per cent.
It fell from £9.7bn in the final quarter of 2022 to £5.8bn.
The values of loans granted was also found to have dropped, falling by 44 per cent when compared to the same period in 2022, when buy-to-let mortgage lending was £10.3bn.
The share of homeowner loans granted for buy-to-let purposes was also just 9.8 per cent of total mortgage lending in the first quarter of 2023.
This is the lowest share seen since 2011, which, Finder.com said suggests that fewer people are looking to invest in buy-to-let properties at the moment.
Steere stated that the findings could have a “worrying impact” on an already competitive rental market and could leave renters with “fewer options and rising costs as they attempt to navigate the cost of living crisis”.
She added that, even though house prices have started to come down, any landlords who are coming off a fixed rate will “no doubt” be put off by the “staggering mortgage rates” which are now over 6 per cent, compared to less than 2 per cent two years ago.
The research compared monthly average buy-to-let mortgage rates, house prices and rent prices in the UK to estimate the return and reported that for someone signing up for a new mortgage deal at each point in time.
tom.dunstan@ft.com
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