Landlords who took out a new mortgage between April and June this year made an annual cash loss for the first time since 2007.
Savills reports that profitability has plummeted since the first quarter of last year when it still would have been possible to make an annual cash profit of £2,800 after tax, equivalent to 22% of the gross rent received. After multiple interest rate rises, in the second quarter of this year that buyer would have made a cash loss of £93 on a gross rental income of £14,000.
Its research - based on a higher rate tax payer, using a 70% LTV mortgage to buy a typical buy-to-let property in their personal name – shows that a buyer would have made a cash loss once mortgage interest payments, repairs and tax were factored in, on the basis that the tax relief they get on their mortgage interest is restricted to the basic tax rate of 20%.
The impact has been a significant fall in BTL mortgage activity; Bank of England figures show £4.2 billion of BTL mortgages were advanced in the second quarter of this year, down from £10.6 billion in the second quarter of 2022 (both house purchase and re-mortgage activity).
Lucian Cook, head of residential research at Savills, says the sharp rise in interest rates has fundamentally changed the profitability of mortgaged buy-to-let investment across the UK.
He adds: “With restricted tax relief for mortgage interest, private investors have been at the sharp end of this. In turn, that has limited the amount of stock available to rent and put significant upward pressure on market rents. Increasingly that means buy-to-let investment has become the domain of cash-rich investors, who have been the main beneficiaries of an undersupplied rental market.”